As night follows day, so will disputes arise in the construction industry. To address disputes in this sector, Parliament introduced a fast-track method of resolving disagreements: adjudication.
Adjudication is now a familiar feature of the construction landscape in England and Wales. It provides parties with a way of obtaining a binding decision within weeks, allowing work to continue and cashflow to relevant stakeholders in a construction project.
The right to adjudicate arises from the Housing Grants, Construction and Regeneration Act 1996 (“the 1996 Act”), as amended by the Local Democracy, Economic Development and Construction Act 2009. This allows parties to a “construction contract” the ability to refer a dispute to adjudication “at any time.”
Section 104 of the 1996 Act broadly defines a “construction contract”. It covers not only the carrying out of building works, but also architectural, design and engineering services. As a result, adjudication reaches far beyond main contractors, touching consultants and specialist subcontractors as well.
When Construction Disputes Arise
The disputes most frequently referred to adjudication include:
- Non-payment of interim applications or final accounts.
- Valuation of variations.
- Claims for extensions of time and loss and expense.
- Issues concerning defects or quality of work.
Because the right to adjudicate exists at any time, a party need not wait until the end of a project. In practice, disputes are often referred while works are ongoing, when cashflow pressures are at their most acute.
Construction Adjudication Procedure
1. Is there a Dispute?
There must be a dispute between the parties to the construction contract/agreement, where one party is seeking a remedy.
2. Crystallisation of the Claim
The claim should have crystallised. In other words, the prospective Referring Party should have explicitly notified the prospective Responding Party of their claim and the basis of the same, giving an opportunity for the Responding Party to admit the claim to no avail.
Therefore, both parties should be clear in their minds about what the dispute is, and the remedy sought.
3. The Notice of Adjudication
The Notice of Adjudication is the first formal step in the adjudication procedure, particularising the dispute and notifying the Responding Party that the dispute is to be referred to adjudication. The Notice of Adjudication should be prepared by the Referring Party and served on the Responding Party.
4. Appointing an Adjudicator
Once the Notice of Adjudication is served, the next step is to appoint an adjudicator. If an adjudicator is not identified in the construction contract, our barristers can advise on the appointment of an Adjudicator.
The appointment of an adjudicator must usually be made within seven days of the service of the notice of adjudication. In the event this is not done, the Claimant must restart the adjudication process.
5. The Referral Notice
The Referring Party, who initiates the adjudication, is also known as the Referring Party and must issue the Referral Notice following the appointment of the Adjudicator. Given the time constraints of the adjudication procedure, the Referral Notice is the referring party’s opportunity to make as detailed submissions as possible in support of his claim to the Adjudicator.
6. The Response
This is the Responding Party’s Defence to the Referring Party’s Claim. Although the 1996 Act does not specifically require a Response from the Responding Party, the necessity is however inevitable in every contested claim.
7. The Adjudicator’s Decision
The Adjudicator must reach their decision within 28 days of service of the referral notice. This period can be extended by a further 14 days if the Referring Party agrees, or extended further, if both parties agree.
The Adjudicator’s decision is binding until the underlying dispute is finally determined by court proceedings, arbitration, or by agreement of the parties via negotiation or mediation.
8. Enforcement of Adjudicator’s Decisions
Should the Adjudicator’s Decision not be complied with within the timescale stated in their Decision, the Receiving Party will be entitled to secure a court order through an expedited procedure in the law courts for the enforcement of the Adjudicator’s Decision.
9. Resisting Enforcement of the Adjudicator’s Decision
There is a presumption in favour of the swift enforcement of an adjudicator’s Decision even in circumstances where the adjudicator is said to have made a wrong Decision. As such, there are very limited and exceptional circumstances in which the courts will refuse to enforce an Adjudicator’s Decision.
Advantages of Construction Adjudication
Construction Adjudication was designed with a particular policy goal in mind: maintaining cash flow. In that respect, it has been highly successful. Among its advantages are:
- Speed: A binding decision within 28 days is unparalleled in other dispute resolution processes.
- Practicality: Adjudication is less formal than commercial litigation or arbitration and can be adapted to suit the adjudicator and the parties.
- Enforceability: Decisions are enforced through the County Court or the Technology and Construction Court, with the latter developing a streamlined procedure for doing so.
- Prospect of settlement: Starting an adjudication, parties’ minds may be focused on settlement rather than incurring the cost of proceeding down this route.
Limitations of Construction Adjudication
Adjudication is not without drawbacks. The tight timetable means that parties sometimes struggle to gather evidence. Disclosure is limited, and adjudicators may have to make decisions based on incomplete information. This may lead to a dissatisfied party challenging an adjudicator’s decision, though in practice many adjudication decisions are accepted as the final word.
Preparing for Construction Adjudication
For those involved in adjudication, the following should be kept in mind:
- Keep contemporaneous records. Payment notices, correspondence, and documents kept in good order are key to presenting a cogent case.
- Move quickly. The timetable is demanding; early and timely preparation at each stage is key.
- Get to the point. Clear, concise submissions assist in securing favourable adjudication decisions.
Conclusion
Adjudication is an integral part of dispute resolution in the construction industry in England and Wales. It was introduced to deliver swift, practical decisions that keep cash flowing through the construction industry.
Therefore, construction adjudication is not a replacement for commercial litigation or arbitration, but is a fast, pragmatic, and effective solution to meet the needs of this unique industry.
