Following my first article in this series exploring some of the common reasons construction disputes occur, in this article I go on to explore the most prevalent and construction-specific means of resolving those disputes that do occur.
Adjudication is often favoured as a means of resolving construction disputes because it enables parties to refer to an experienced construction professional to deal with disputes in a timely and cost efficient manner, without resorting to court proceedings. Adjudication is a rapid process, with the starting point being that it takes just 28 days from the dispute being referred to get to the point of a binding decision being issued. Whilst the timescale is often subject to extension by agreement of the parties, the vast majority of adjudications take place within 6 – 12 weeks at the most.
Who can refer a construction dispute to Adjudication?
The Construction Act contains wide ranging minimal standards which every construction contract must comply with, including a right to refer a dispute to adjudication “at any time”, and with only a few exceptions.
Construction contracts are required to contain provisions which set out the procedural rules for adjudication, failing which a default set of rules is implied into the contract, being contained in the Scheme for Construction Contracts, which is a statutory instrument which sits behind the Construction Act.
Are decisions legally binding?
Adjudicator’s decisions are “temporarily binding” – that is, the parties must abide by them, unless or until the dispute in question is finally determined, either by a decision of a court, in adjudication, or settlement. It is therefore referred to as a “pay now, argue later” regime that results in a quick decision to protect and maintain cash flow.
Consistent with its purpose, it’s important to emphasise that under the Act, a party has a right to refer a (single) dispute to adjudication. They cannot refer multiple disputes within the same adjudication, as this would often serve to make the short and sharp timescales unworkable, although it is open to the parties to agree to refer multiple disputes in the same adjudication.
Advantages of Adjudication
Speed – Adjudication is much quicker than Court proceedings, which can take 12 months or more.
Cost – Substantially less work is required in adjudication than in court proceedings which naturally means it is much more cost effective.
Certainty – Adjudication is designed to break any impasse that may be reached as the project progresses, particularly those where a party considers they are being denied their entitlements to be paid for certain items on an interim basis.
Reliability – Adjudicators themselves are experienced construction professionals, whether construction lawyers, surveyors, architects or others, who will have demonstrated significant experience and expertise in dealing with construction claims in order to be on the panel of adjudicators maintained by organisations such as RICS, RIBA, and TeCSA.
Adjudication is particularly well suited to interim payment disputes (and it was conceived with this centrally in mind), as well as disputes at or towards the end of a project that have been stored up. It is worth noting that the referring party has a significant advantage in adjudication because they get to decide the scope of the dispute and therefore typically encompass the issues on which they are strongest.
Disadvantages of Adjudication
Complexity – Whilst any dispute can be referred to adjudication, complex matters can cause a strain on the process because of the sheer volume of material involved and for the adjudicator to consider in order to reach their decision in a timely manner.
Responding party is put on the back foot – The referring party is at a natural advantage in not only being able to set the parameters of the dispute, but also in getting their ducks in a row before they start the process. A responding party not prepared for adjudication may face a challenging time to turn around their response within the tight timescales.
Liability for costs – In adjudication the parties will bear the costs of their representation, whatever the outcome. This differs from court proceedings, where generally the losing party will bear a proportion of the winning party’s costs.
Rough Justice – Narrowly scoped adjudication can result in rough justice as an adjudicator looks at one specific issue on which a referring party may have a substantial entitlement, and has to ignore everything else that may be going on between the parties on the project.
Serial Adjudication – Particular challenges can also arise if a party is hell-bent on raising a whole series of very narrowly scoped adjudications, particularly if you end up with different adjudicators on some or all of the different adjudications.
Key Stages in Adjudication
- Dispute must have “crystallised”
Firstly, it’s necessary for a claim to have been made under the contract, and for the dispute to have crystallised. In practice, this is a relatively low bar – if a claim is made, and is rejected with or without detailed explanation, that will usually be sufficient to fulfil the requirement of there being “a dispute” which is capable for reference.
- Notice of Adjudication
This is the first significant document in the adjudication process. It puts the other party on notice and sets out the parameters of the dispute, as well as detailing the relief that is being sought.
- Appointment of Adjudicator
After notice has been sent, the referring party will take steps to get the adjudicator appointed. The contract will sometimes name a particular adjudicator, but more often it will provide that one of the Adjudication Nomination Bodies will nominate an adjudicator to act.
- Jurisdiction Challenge
At this stage, the responding party may wish to challenge to the appointment of the adjudicator, on the basis that they do not have the jurisdiction to proceed. Common challenges include arguments that the contract falls outside the scope of the Construction Act, where the dispute has not crystallised, where the dispute has already been determined, or where there have been defects in the appointment process.
Once the adjudicator has been appointed, and within 7 days of the Notice of Adjudication, the referring party must then send its Referral, containing all the submissions and evidence (from witness and any relevant expert) on which it relies.
It is then over to the responding party to prepare its response, which again contains all of its submissions and evidence. The responding party will have a very tight time period within which to do so, normally having a deadline of 7 or 14 days from when the referral was sent.
- Further Submissions
The extent and timescales for further submissions is then at the discretion of the adjudicator. Normally the referring party will get a chance to put in a Reply to the Response, and beyond that there may be further rounds of submissions (known as a Rejoinder and Surrejoinder).
- Further Steps
The adjudicator will then make directions as to whether or not they would like to convene a meeting of the parties. Typically though, the adjudicator may direct specific questions to one or both of the parties, and prepare a list of issues during the latter stage of the submissions. The adjudicator will then send it to the parties for their agreement or any comments.
- Decision Issued
Either within 28 days of the referral or such extended timeframe as may have been agreed with the parties, the adjudicator will issue their written decision.
“Smash and Grab” Adjudications
This term refers to adjudications seeking payment of a sum not on the basis that they are demonstrating that it reflects the true value of what is due to them, but instead based on the other party having failed to take the necessary steps to respond to their application for payment.
If a valid Payment Notice or Pay Less Notice has not been issued or has been issued late, in certain circumstances, the paying party will become liable by default to pay the sum that the payee applied for. In these circumstances the “pay now, argue later” principle applies meaning the paying party must pay the sum that has become due before they can adjudicate on the true value that is due.
A successful party can use a process within the Technology & Construction Court to rapidly apply for summary judgment, to effectively upgrade the terms of the binding Decision into a court judgment. The court does not have any discretion to consider whether or not they think the adjudicator got a decision right or wrong, and can only find a decision unenforceable where they find that the adjudicator had no jurisdiction, or there is such a serious procedural failing or irregularity during the adjudication process that it amounts to a breach of natural justice.
If you have any questions about the topics raised in this article, please get in touch.
You may also be interested to see my related articles on common reasons construction disputes occur, about methods of alternative dispute resolution, along with my final article in this series on re-setting construction contracts and conditional settlement.