Throughout this article, I will explain the process of Adjudication in construction dispute resolution, the fees associated and the issues involved.
Firstly, we need a clear definition of what Adjudication is…
What is Adjudication?
Adjudication is a compulsory dispute resolution mechanism that applies to the construction industry. It is a form of dispute resolution that recognises and complements the distinct nature of the construction industry and the various forms of disputes it is prone to.
Statutory Adjudication was introduced by the Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996).
- Applies to parties with a “construction contract”, who cannot contract out of it.
- Is a 28-day procedure (although the parties can agree to extend this period).
- Is often described as a “pay first, argue later” mechanism for resolving disputes in the construction industry.
- Is designed to project cash flow during construction.
Adjudication is appropriate for resolving claims relating to:
- Interim payments.
- Delay and disruption of the works.
- Extensions of time for completion of the works.
- Defects in the works.
- The final account.
Adjudication can also be referred to for more complex claims such as a breach of contract, termination of a contract and professional negligence.
How does the Adjudication process begin?
One of the parties is required to give written notice of its intentions to refer the dispute to Adjudication. This must include…
- A description of the nature of the dispute and the parties involved.
- Details of where and when the dispute arose.
- The nature of the remedy being sought.
- Names and addresses of the parties to the contract, including addresses where documents may be served.
Once a notice of Adjudication has been served, an Adjudicator must be secured within seven days from the service of the notice.
The appointment of an Adjudicator requires consent from both parties. If consent is not reached, the party who originally referred the matter has the option of making an application to an Adjudicator Nominating Body (ANB), selection should be confirmed within five days of the request.
Next, a referral notice is required.
The referral notice must in detail set out the case of the party who has brought the matter to Adjudication and must also include any documentation in support of the claim. This is a time-sensitive part of the process, as the referral notice must be served within seven days of service of the notice of Adjudication.
You may be wondering whether a response is required…
Whilst there is no legal requirement for the other party to serve a response, Adjudicators often require one within seven days of the referral notice. In some instances, this may be extended to 14 days.
It is time for a decision to be made.
Adjudicators must hand down their decision within 28 days of service of the referral notice. However, with the agreement of the referring party and all other parties involved, this deadline can be extended by 14 days.
The Adjudicator’s decision is final and binding, providing that is it not challenged by subsequent Arbitration or Litigation. In the circumstance that parties intend to pursue court or Arbitration proceedings, they must comply with the Adjudicator’s decision.
If subsequent proceedings are pursued, the dispute will be heard afresh and it will not be considered an appeal to the Adjudicator’s decision. However, once an Adjudicator has made a decision on a particular matter, that same issue cannot be referred to a ‘second’ Adjudicator.
What are the fees for Adjudication?
Section 108 A of the Construction Act 1996 sets out that any contractual provision which attempts to allocate the costs of Adjudication between the parties will be invalid, unless:
- It is made in writing, is contained in the construction contract and confers power on the Adjudicator to allocate his fees and expenses between the parties.
- Or, it is made in writing after the giving of notice of intention to refer the dispute to Adjudication.
Therefore, both parties are jointly and severally liable for the fees of the Adjudicator. Both parties can be pursued for these fees, or either party may be pursued for the whole amount, the sum itself is decided upon by the Adjudicator.
What are the issues with the Adjudication process?
The obstacles in raising a successful challenge to the Adjudicator’s Decision are significant…
Whilst Adjudication can bring practical benefits to dispute resolution in the construction industry, the short 28-day timetable involved in the process means that parties involved must be highly organised and skilled in order to be successful.
The Claimant may initially be in control of the timetable when issuing a referral notice, but they will have to be ready to face substantial Defence within a short period of time.
On the other hand, the Defendant is regularly exposed to dealing with and preparing a defence to the substantial claim, which can take a significant amount of time (something they do not have a lot of in this case).
As you can see, Adjudication is a complex process which can result in heavy financial implications for both parties involved.
That is why seeking legal assistance at the right time is detrimental to avoiding sky-rocketing Adjudication costs.
At Mercantile Barristers, our barristers are specialists in conducting construction contract disputes in Adjudication. We have created a systematised approach in our Adjudication practice which employs methods designed to win cases or deploy effective defences for clients at first instance.
We adopt a firm, swift and decisive approach to achieve the best possible results for clients within the shortest possible time.
So, if your construction project has taken a turn for the worst and is headed down the path to Adjudication, we can help.
Please contact me directly for more information.