“Smash and grab” adjudications: an overview

Introduction

In the fast-paced world of construction, payment disputes are common, often leading to delays, financial strain, and project disruption. As per our earlier articles detailing the introduction and benefits of adjudication, there are methods of alternative dispute resolution which have been introduced to help ease this burden.

One mechanism that has gained traction in resolving such disputes swiftly is known as “smash and grab” adjudication. This form of adjudication has become a tool for contractors seeking prompt payment.

But what exactly is a smash and grab adjudication, how does it work, and what are its implications for both paying parties and contractors? This article explores these questions, providing insight into the legal framework, advantages and risks.

What is a smash and grab adjudication?

A smash and grab adjudication is a legal process initiated by a contractor to recover unpaid sums due under a payment application when the paying party has failed to issue a valid payment notice or pay less notice within the statutory or contractual deadline.

There are strict rules governing interim and final payments in construction contracts. When these rules are not adhered to, contractors can take advantage of procedural errors to secure payment through adjudication.

In essence, a smash and grab claim does not focus on the actual value of work completed but rather on the failure of the paying party to comply with the proper payment notice requirements. If successful, the contractor is entitled to the full amount claimed in their payment application, regardless of whether it accurately reflects the work done. The paying party will later be entitled to have the “true value” determined in a subsequent adjudication, but (with very limited exceptions) only if they have paid the sum awarded in the successful “smash and grab” adjudication.

The “smash and grab” is therefore a mechanism by which the contractor can seek payment of sums it says is due to it, and strengthen its own financial standing and ability to defend any true value adjudication (where the focus is on the value of the work completed).

The legal framework

The legal foundation for smash and grab adjudications lies in the Construction Act 1996 and its subsequent amendments. Key provisions include:

• Payment notices: Paying parties must issue a payment notice specifying the sum due within the contractual timeframe
• Pay less notices: If the paying party disputes the amount claimed, they must issue a pay less notice within the prescribed period, outlining the reduced amount and the basis for that assessment
• Default payment notice: If the paying party fails to issue a payment notice or a pay less notice on time, a default payment notice is one given by the contractor to set out the amount the contractor believes is due for the work completed
• Consequences of non-compliance: If the paying party fails to issue a valid payment or pay less notice, the contractor’s application becomes the default sum due, and they are entitled to pursue adjudication to enforce payment.

How a smash and grab adjudication typically works

1. Submission of payment application: The contractor submits a payment application specifying the amount claimed for work completed
2. Paying party’s response (or lack thereof): The paying party must respond by issuing a payment notice or, if they dispute the sum, a pay less notice within the required time, setting out proper particulars of the basis of their calculation
3. Failure to issue a notice: If the paying party does not provide the required notice, the contractor’s application may become due by default. In these circumstances, the contractor is required to serve a default notice. However, under some forms of contract (such as the JCT 2024, Design and Build Contract), the obligation in the absence of a payment notice is to pay the sum applied for without a requirement for a default notice to be served, so the application for payment effectively “self-certifies” the sum, and therefore removes the need for a default notice
4. Initiation of adjudication: The contractor refers the dispute to adjudication, arguing that the paying party has no legal basis to withhold payment by reason of the absence of valid notice(s)
5. Adjudicator’s decision: The adjudicator determines whether the procedural requirements have been met and, if so, orders the paying party to pay the full amount claimed.

Advantages of smash and grab adjudications

Without focus on the merits of the payment application, the smash and grab adjudication is a “rough and ready” approach to payment disputes. Some of the advantages are as follows:

• Speedy resolution: Adjudication is a swift process, concluding within as little as 28 days, allowing contractors to recover payments promptly
• Cost-effective: Compared to litigation, adjudication is relatively inexpensive, reducing financial burdens on contractors
• Legal certainty: If the paying party has failed to meet their obligations, the contractor has a high chance of success of obtaining an interim remedy
• Improved cash flow: Contractors can maintain liquidity and continue working on projects without unnecessary financial stress.

Risks and challenges for the paying party

While smash and grab adjudications benefit contractors, they can pose significant risks for the paying party:

• Liability for large payments: If a paying party neglects notice requirements, they may be forced to pay substantial sums even if the work has not been completed to a satisfactory standard
• Potential for multiple adjudications: Paying parties may need to initiate a second adjudication (a “true value” adjudication) to reassess the actual amount owed, leading to further legal costs and delays
• Increased administrative burden: Paying parties must ensure they have robust payment notice procedures to avoid costly mistakes.

How to prevent smash and grab adjudications

Paying parties can mitigate the risk of smash and grab claims by:

• Implementing robust payment procedures: Establishing clear internal processes for issuing timely and accurate payment notices
• Training staff on compliance: Ensuring that contract administrators and financial teams understand their statutory and contractual obligations
• Using automated payment technology: Leveraging technology to track deadlines and automatically generate notices
• Seeking legal advice early: Consulting construction law experts when disputes arise to avoid procedural missteps.

Conclusion

Smash and grab adjudications are a vital mechanism for enforcing prompt payment in the construction industry, offering contractors a legal remedy when paying parties fail to comply with statutory notice requirements.

While they provide a powerful tool for securing cash flow, they also highlight the need for strict adherence to contractual payment procedures. Paying parties must take proactive steps to ensure compliance and minimise exposure to claims, while contractors should remain vigilant in asserting their rights when payments are unjustly withheld.

Understanding the legal landscape surrounding smash and grab adjudications is crucial for all parties involved in construction projects, ensuring fair and timely payments while avoiding costly disputes.

If you have any questions about the topics raised in this article, please get in touch.