Adjudication changes

21/06/2011

By Chris Kirby-Turner, Associate in Construction & Engineering.

Quite apart from the industry familiarising itself with the new default payment provisions (which could well increase the risk of an avoidable dispute if not followed correctly), the adjudication procedures are also subject to more subtle, but nonetheless significant, reform.

The three main changes that will apply to the statutory adjudication provisions are as follows:

1. A contract no longer needs to be in writing

Currently, only a construction contract that is in writing (either wholly or substantially) is subject to the statutory adjudication provisions. The logic behind this has always been that in the very short timescales involved in adjudication, it is simply impracticable for the adjudicator to first have to establish what the terms of the contract actually are (where there is little, if anything, in writing).

Whilst this will significantly increase the number of disputes that can potentially be resolved by adjudication, the practical concerns remain as to whether this will dilute the value of adjudication as a fast (some would say quick and dirty) dispute resolution process.

A side effect may also be to increase the number of cases where a ‘no contract’ argument is run. Here, the dispute must be resolved on the basis of an assessment of a fair value for the work (if there was truly no agreement reached on the cost of the work, or the basis on which it was to be assessed). Whilst a no contract argument is potentially a useful get out for a party on the receiving end of an adjudication, such disputes are notoriously difficult to resolve (given the magnitude of the task for an expert to assess the value of the works). An increase in the frequency of this argument being run may well prove unwelcome.

2. The adjudicator can still get it ‘wrong’

Generally, provided there is no procedural irregularity, where an adjudicator gets their decision ‘wrong’ it will still be enforceable (as either party will always have the option to commence court proceedings to have matters dealt with on a final basis). The reason for this is that for adjudication to be a time and cost effective process, the courts will not get embroiled in assessing whether the decision is right or wrong - the epitome of its rough and ready nature.

Over the years, limited exceptions have been developed by the court, including the ‘slip rule’, which allows an adjudicator to correct any obvious error in their Award (most commonly, an arithmetical error).

Parties have naturally sought, almost invariably without success, to extend this principle to correct other mistakes. That avenue now looks to be closed by placing the slip rule on a statutory footing, and therefore underlines the ‘pay now, argue later’ approach applied by the court when adjudication Awards are enforced.

3. Agreements on payment of costs

Case law has previously outlawed clauses whereby the costs of a dispute are allocated between the parties at the time of the contract, irrespective of the eventual result (so-called Tolent clauses). As part of the amendments to the Construction Act, it was intended to put this on a statutory footing to confirm that such agreements are ineffective; instead, only agreements entered into after the dispute has arisen would be effective.

Whilst this is what was intended under the Act, unfortunately there is serious ambiguity in the proposed wording. This has attracted widespread criticism from the industry (and a judge in a recent Scottish case), as it potentially allows such arrangements to be permitted by the back door. Therefore, it would be dangerous to sign up to a contract containing such a clause on the assumption that it would be ineffective by virtue of case law, unless or until the ambiguity in the new act is resolved.