Construction Contract Adjudication

• What is adjudication?
• Which Industries are subject to adjudication?
• What type of disputes can be adjudicated?
• Are there any special procedures for adjudication?
• Who pays for adjudication?
• What is the Scheme for Construction Contracts?
• How does the adjudication process end?
• Is adjudication legally enforceable?
• Is adjudication the only way to resolve the dispute?

Construction Contracts Adjudication

What is Adjudication?

1. Adjudication is a statutory legal procedure by which any party, and particularly a subcontractor, to a construction contract has the right to have a sub-contract dispute decided by an adjudicator.
2. It is intended to be a quick process and it can be cost effective when handled properly.
3. It is normally used by subcontractors to obtain payment but most types of dispute can be adjudicated.
4. It is a very quick process and the adjudicator must generally decide the dispute in less than 42 days.
5. Matters are resolved in accordance with subcontract law.
6. The decision is temporarily binding and can be enforced by the Courts.

Which Industries are subject to adjudication?

The scope of adjudication is set out in the provisions of the Construction Act i.e. the Housing Grants, Construction and Regeneration Act 1996.  This is an aspect of subcontract law which applies to subcontracts in a wide range of construction and engineering projects but does not apply to every contract.  If in doubt please use Ask Streetwise for free advice**.

What type of disputes can be adjudicated?

Please don’t assume that you automatically have a dispute that can be adjudicated!  In order for a dispute to be adjudicated, that dispute has to “arise under the contract” to be subject to the Construction Act.

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, 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 see how Ask Streetwise can help you.

Thirdly, a great many disputes can be resolved by dialogue and negotiation and without wanting to go soft on the Stabards of this world 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 can win, but as we know, that is impossible!

If you would like to talk about resolving subcontract disputes with a switched on friend you can turn to for advice and support see how Ask Streetwise can help you.

The kind of subcontract disputes that can be adjudicated in accordance with the Construction Act include:

Money – Perhaps the most obvious and most common subcontract dispute is about money in one form or another.  This might involve non payment of the sub-contractor, under certification of the sub-contractors account, failure to properly value subcontract variations or unfunded set off from the sub-contract account.

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 the Stabards of this world will bend the rules in their favour.  Unfortunately subcontract law as it stands does not prevent them from doing so.

The amount to which the rules might be drafted against you will vary from the inconvenient to the downright lethal.

If you are in any doubt please Ask Streetwise

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 probably best to take professional advice.  If in doubt Ask Streetwise

Bear in mind that the whole adjudication process takes place very quickly so you need to act very quickly indeed if you are on the receiving end of an Adjudication Notice!

If you want to progress your claim by way of adjudication then you need to ensure that you have a dispute which can be adjudicated.  See “What type of dispute can be adjudicated?”

Once you are satisfied that you have a dispute that can be adjudicated, the process is started by way of written notice (Adjudication Notice) to the other party.

The Adjudication Notice is a very important document in that it defines what matters the adjudicator has the jurisdiction to decide.

The notice must contain the following:

Nature and brief description of the dispute, when and where the dispute arose. Nature of the redress being sought. Names and addresses of the parties to the contract

The Adjudication Notice must be served on the other party before you approach an Adjudicator Nominating Body to appoint an adjudicator.  The ANB will normally require a fee for them to appoint an adjudicator.

Once appointed the adjudicator will write to both parties advising them of his appointment.

The Referral Notice must be issued to the adjudicator within 7 days of the issue of the Adjudication Notice. There is usually a fair amount of work in the preparation of the Referral Notice even in the simplest of disputes.  It is for this reason that in the vast majority of cases the Referral Notice is prepared before the Adjudication Notice is served.

The 28 day period for the adjudicator to make his decision starts on the date the adjudicator receives the Referral Notice, provided of course that it has been served within 7 days of the Adjudication Notice.

If you are in any doubt about the process please Ask Streetwise

Please do not treat the process lightly.

If in doubt please ask.  Call us now on 01773 712116.

Who pays for adjudication?

Costs

Originally, the Construction Act made no mention of how costs should be dealt with. However, changes to the Construction Act introduced by the Local Democracy, Economic Development and Construction Act 2009 which came into force on 1 October 2011 provide that any contractual provision which attempts to allocate the costs of an adjudication between the parties will be invalid, unless it is made after the adjudicator is appointed. This applies to agreements both as to the allocation of the adjudicator’s fees and expenses and agreements as to who is to bear the parties’ own costs.

This provision seeks to prevent parties agreeing contractual terms which place all the costs risk on one party.

Adjudicator’s fees and expenses

The parties will be jointly and severally liable to pay the adjudicator a reasonable amount in respect of fees for work reasonably undertaken and expenses reasonably incurred by him. This means that both parties can be pursued for these fees, or that either party may be pursued for the whole amount. The adjudicator may decide himself what sum is reasonable but, if there is any dispute, an application can be made to the court for determination. This provision applies only to adjudications which contain the required adjudication provisions set out in the Construction Act, not to adjudications which rely on the provisions of the Scheme for Construction Contracts.

The Local Democracy, Economic Development and Construction Act 2009 provides that:

• the parties may agree, in the construction contract, to confer power on the adjudicator to allocate his fees and expenses between them  (this agreement must be in writing);
• if the parties agree, in the construction contract, to allocate liability for their own costs of the adjudication that provision will be ineffective;
• the parties are free to agree liability for their own costs of the adjudication after the notice of intention to refer has been given – if they do so, this agreement must be in writing.

The Act does not address what will happen if a contract provision allocates liability for both the parties’ costs and the adjudicator’s fees and expenses. It is arguable that in such a situation the whole clause will be ineffective.

If you are being offered contractual terms which you are unsure about then we can review them on your behalf. Our Nationwide Team have vast experience in construction and engineering related contracts and are available to help you to avoid the commercial and contractual risks of accepting onerous contract conditions.

What is the Scheme for Construction Contracts?

The Construction Act i.e. Housing Grants, Construction and Regeneration Act is a key component of subcontract law and provides, at Section 108 of Part II, that a Construction Contract must embody eight principles concerning the right to adjudication. If the contract does not comply with Section 108 then any adjudication provisions in the Contract (with the exception of the naming of an adjudicator or adjudicator nominating body) are ignored and the Scheme applies.

The Scheme for Construction Contracts is a set of rules which includes all eight principles and will automatically apply to any Construction Contract which omits even one of these. The Standard forms of contract generally include all of the principles. Again be extremely careful that the contract does not amend the Scheme.

How does the process end?

It sometimes happens that the other party will seek to negotiate a settlement once the Notice of Adjudication has been issued. You should be alive to this possibility but should not expect it to happen. Nor should you become distracted from the adjudication process itself.

It is often the case that the Notice of Adjudication brings about a hardening of attitude from the other party who will then fight tooth and nail to defend their position.

If the process runs all the way through it will result in the Adjudicator’s Decision. This will be published to the parties and it will set out his decision in respect of the matters referred to him. It will also set out the date by which any monies to be paid by one party to the other must be paid, and it will set out his fees and the proportion to be paid by each party.

Assuming that you are the Referring Party and you obtain a monetary decision in your favour then you should contact the Responding Party to establish how they intend to make payment. e.g. BACS transfer, collect a cheque etc.

If they refuse to pay then it would be a matter for you to enforce the decision in the courts and this is a job for a solicitor with specialist construction expertise, as it should be a relatively quick process albeit that it may cost in excess of £1500 at 2009 rates.

If you are in any doubt about adjudication please Ask Streetwise

Adjudication in Construction Contracts – Is it legally enforceable?

The Adjudicator’s Decision is binding on the parties until the dispute is finally decided by arbitration (if provided for in the contract or agreed to), litigation or agreement. Because it is binding the Courts will enforce the decision in summary proceedings. Generally the only defence to such proceedings is that the Adjudicator’s decision was made outside his jurisdiction.

Challenging an Adjudicator’s Decision

Adjudication is sometimes referred to as a form of “rough and ready” justice. Not surprisingly therefore,there are occasions when the decisions reached, or the manner in which they are reached give rise to the need for the Responding Party is to challenge the decision.

Challenging an adjudication decision can only be successful for certain specific technical reasons. Simply having received what appears to be the “wrong decision” is not sufficient grounds for a challenge.

As a form of “rough and ready justice”, adjudication has worked well. However, because of the short time scale of adjudication, it has been widely recognised that decisions may not always be accurate.

An adjudicator’s decision is final until the dispute is resolved, whether that is by way of a negotiated settlement, litigation or arbitration.

However, as has been shown by the case law over the years, not all of the adjudicator’s decisions have been accepted or paid.

Adjudicators have quite sweeping powers of investigation,but they must act within certain defined limits, and if they exceed those limits then their decision could be unenforceable.

Adjudicators have to act within the jurisdiction which has been given to them, and in accordance with the rules of natural justice.If they do not then the courts may refuse to enforce their decision.

Court Rules now state that the way to enforce a decision is to apply for Summary Judgment. In order to do this it is necessary to issue a claim form and an application for Summary Judgment in the Technology & Construction Court (TCC).

Courts aim to provide a hearing date within 28 days of the issue of the claim form, and this is rightly a tight time scale for the Defendant to serve its evidence in response, setting out his reasons for non-payment and for the Claimant to respond prior to the hearing date.

Ordinarily, provided the Judge is satisfied that the adjudicator’s decision is valid and that the Claimant is entitled to enforce that decision, then Judgement will be given in the Claimant’s favour, together with an award of costs.

Is adjudication in construction contracts the only way to resolve the dispute?

Most certainly not!

In fact it may be that adjudication is not the best way to resolve the dispute. There are potentially various different ways to resolve the dispute ranging from informal negotiation to litigation. Please see the Dispute Resolution Page

Adjudication in construction contracts – If your own efforts to settle the matter have failed the sooner you take professional advice the better.

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