Adjudication Under The Act (Part 1)
This is the first of of a series of three articles Adjudication process under the Construction Act.
Adjudication Under The Act
Adjudication in construction contracts. Where the Act applies, there is now a statutory right to refer any dispute or difference arising under the contract to adjudication. All ‘construction contracts’ as defined in the Act, must contain an adjudication procedure. The basic requirements of the Act are:
1. Either party can give notice of adjudication ‘at any time’.
2. The contract must provide a timetable for appointment of an adjudicator and referral of the dispute within seven days of the initial notice.
3. The adjudicator must reach a decision within 28 days of the referral (up to 42 days if the referring party agrees).
4. Period extended only if both parties agree, or with consent of referring party.
5. The adjudicator must act impartially
6. The adjudicator may take the initiative in ascertaining the facts and the law.
7. The decision of the adjudicator must be stated to be ‘binding until the dispute is finally determined by legal proceedings, by arbitration… or by agreement’.
8. The parties may agree to accept the adjudicator’s decision as final.
9. The adjudicator can correct clerical or typographical errors in his/her decision
10. The adjudicator is not liable for anything done or omitted unless the act or omission is in bad faith
If the contract agreement fails to comply with any of the above basic requirements, then the entire provisions of the ‘Scheme for Construction Contracts’ shall apply. And you also need to bear in mind that the contract may contain express provisions which provide for adjudication, even if the Act does not apply.
What is Adjudication?
Adjudication is a statutory legal procedure by which any party, and particularly a subcontractor, to a construction contract has the right to have a dispute decided by an adjudicator. It is intended to be a quick process and it can be cost effective when handled properly.
It is normally used by subcontractors to obtain payment, but most types of dispute can be adjudicated. However, some disputes are not suitable for adjudication, and some Contractors will not pay even when the adjudicator’s decision goes against them. Therefore, we strongly suggest that you take appropriate advice, before setting off on the path to adjudication. It is very easy to get it wrong, and getting it wrong can have serious financial consequences!
What type of disputes can be adjudicated?
Please don’t assume that you automatically have a dispute that can be adjudicated. For a dispute to be adjudicated, that dispute has to “arise under the contract”.
First, this means that disputes relating to the formation of the contract are not ordinarily capable of resolution by adjudication.
Second, the “dispute” may not yet have arisen, and adjudication should not be used to replace the contractual processes. In other words, if you haven’t properly submitted your claim or followed the procedure set out in the subcontract, or have been asked for information which you haven’t provided, you will not be able to adjudicate, unless the other party agrees. Similarly, the other party may genuinely not understand your point of view. You need to take an objective view of that situation and if in any doubt take professional advice.
Thirdly, a great many disputes can be resolved by dialogue and negotiation and without wanting to go soft on the unscrupulous Contractors, you should check that you have done all you can to resolve the subcontract dispute by discussion. This might require some tough talking, but one big advantage of negotiating a settlement is that you get certainty. In other words, if you agree a deal for £xxx then that is what you are going to get.
If you commence adjudication or any other form of formal dispute procedure set out in the subcontract, such as litigation or arbitration you can never be certain of the outcome, no matter how strong a case you have. Look at it this way. When two professional and unbeaten boxers get into the ring both “know” they are going to win, but as we know, that is impossible!
The kind of disputes that can be adjudicated include:
• Non-payment of the subcontractor.
• Under certification of the subcontractor’s account.
• Failure to properly value subcontract variations.
• Set off from the subcontractors account.
• Entitlement to extension of time.
• Entitlement to loss and/or expense.
Are there any special procedures?
The contract may contain provisions and rules for adjudication. It may incorporate a set of rules by reference or it may be silent on the issue.
You need to be very careful that you understand the rules! Just like everything else in construction some Contractors will bend the rules in their favour. The amount to which the rules might be drafted against you will vary from the inconvenient to the downright lethal.
There are a number of organisations which have published their own Adjudication Rules and/or act as Adjudicator Nominating Bodies (ANB’s). Here are a few of them;
- The Technology and Construction Solicitors’ Association (“TeCSA”).
- The Technology and Construction Bar Association (TECBAR).
- The Institution of Chemical Engineers (IChemE).
- The Chartered Institute of Arbitrators (CIArb).
- Chartered Institute of Arbitrators (Scotland) (CIArb-Scotland).
- Chartered Institute of Building.
- Institution of Civil Engineers (ICE).
- RICS – Dispute Resolution Service (RICS-DRS).
Construction Act adjudication was originally intended to be a simple process by which disputes could be resolved. To a certain extent adjudication is a simple process, but it is nonetheless a legal process and not one to be undertaken lightly.
If you have no experience of legal process, then it is best to take professional advice. Bear in mind that the whole adjudication process takes place very quickly, so you need to act fast if you are on the receiving end of an Adjudication Notice!
Need Further Advice?
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Look out for part two of this series of three Adjudication Under the Construction Act.