Adjudication in construction contracts

[edit] Introduction

Adjudication is a contractual or statutory procedure for swift interim dispute resolution. It is provided by a third party adjudicator selected by the parties in dispute.

Adjudication is often subject to a strict timetable and may be based purely on documentary submissions (see for example, NEC Engineering and Construction Contract, option W2). Adjudicators can adopt an inquisitorial role which may involve taking the initiative in ascertaining facts and law.

Adjudication decisions are binding unless and until they are revised by arbitration or litigation. There is no right of appeal and limited right to resist enforcement. Award of legal costs is at the discretion of the adjudicator unless this is excluded by the terms of the contract. Based on decision and written information received from both parties, the whole process can take up to 28 days and the decisions are binding.

If parties to a construction contract do not agree an adjudication procedure, then one is imposed by statute (see the Housing Grants, Construction and Regeneration Act 1996 Part II Section 108 and the Local Democracy, Economic Development and Construction Act 2009 Part 8, which took effect in England and Wales in October 2011 and in Scotland in November 2011).

Contractual adjudication procedures must comply with Section 108 of the Housing Grants, Construction and Regeneration Act.

The adjudicator is either named in the contract, agreed by the parties or appointed by a nominating body, usually named in the contract (see for example, the Technology and Construction Solicitors Association (TeSCA) which has developed its own Adjudication Rules (now version 3.1).

If the parties do not agree procedural rules which comply with the Housing Grants, Construction and Regeneration Act then the Act imposes the rules set out in the Scheme for Construction Contracts.

[edit] Advantages and disadvantages

Advantages:

• The parties can select the expert or the characteristics of the expert.
• The expert can act as an investigator.
• Seldom lengthy oral arguments or legal submissions.
• No cross examination or formal evidence.
• Streamlined, speedy and flexible procedures as agreed between the parties.
• Less expensive.

Disadvantages:

• The expert cannot go beyond the jurisdiction specified in the contract.
• The expert determination is not supported by statute.
• The expert powers are limited.
• The expert's determinations must be enforced by commencing court proceedings.

[edit] Section 108 - key adjudication provisions

[edit] Section 108 of the Act

• The requirements for adjudication that all construction contracts should provide for.
• If the contract does not comply with these requirements, then the statutory scheme will apply.
• A party to a construction contract will thereby be able to refer any dispute arising under the contract for adjudication under either the contractual scheme or the statutory scheme.

[edit] Section 108 (2) - stipulates that the contractual scheme for adjudication should

• Enable a party to give notice at any time of his intention to refer a dispute to adjudication.
• Provide a timetable with the object of securing the appointment of an adjudicator and referral of the dispute to him within 7 days of such notice.
• Require the adjudicator to reach a decision within 28 days of referral or such longer period as agreed by the parties, or by up to 14 days with the consent of the party by whom the dispute was referred.
• Impose a duty on the adjudicator to act impartially.
• Enable the adjudicator to take initiative in ascertaining the facts and law (the adjudicator is not required to act judicially when applying the law, nor is there any obligation upon him to reach the right answer).
• Provide that the decision of the adjudicator is binding unless and until the dispute is finally determined by legal proceedings, by arbitration or by agreement.
• Provide that the adjudicator is not liable for anything done or omitted in the discharge of his functions unless in bad faith.

[edit] The scheme for construction contracts

Notice

• The party seeking adjudication serves written notice on every other party to the contract.
• This briefly sets out the nature of the dispute and the relief sought.
• A copy is sent to the adjudicator of nominating body.

Appointment

• Selection of an adjudicator by a body must be communicated to the parties within five days of referral.
• The selected adjudicator has two days to decide whether he is willing to act.
• This person must not be an employee of a party to the dispute.
• Once appointed, the referring party must serve notice on the adjudicator, accompanied by copies of all documents on which that party intends to rely.
• Copies of this notice and documents are sent to all other parties in the dispute.

Related disputes

• The adjudicator may decide more than one dispute arising out of one contract if there is consent between the parties. Typically the Adjudication Dispute will only deal with one dispute.
• May decide related issues arising under different contracts.

Objection to adjudicator

• The objection of a party to the appointment of a particular person as adjudicator will not invalidate the appointment or decision of the adjudicator.

Powers of adjudicator

• To open up, revise and review certificates unless the contract provides that they are final and conclusive.
• To decide and order payment of sums due under the contract.
• To decide whether interest should be paid.

NB: In 2017, the Construction Industry Council (CIC) published a new Users’ Guide to Adjudication, providing a general introduction to adjudication in the context of construction contracts, and in particular the right to adjudication in the UK and Northern Ireland.

In the case of Michael J Lonsdale (Electrical) Limited v Bresco Electrical Services Limited (In Liquidation) [2018] EWHC 2043 (TCC), Mr Justice Fraser QC ruled that where there are claims and cross claims between the parties to a contract, a claim cannot be settled by adjudication because it is not a claim under the contract and so an adjudicator could rule on it.

NB The Global Construction Disputes Report published by Arcadis in 2019 found that the UK remains the jurisdiction with the shortest average length of time to solve a dispute at 12.8 months, and that the average value of disputes in the UK has fallen 47% to US$ 17.9 million. Negotiation remains the preferred method of resolution.

[edit] Related articles on Designing Buildings

• Adjudicator.
• Adjudicators and bias.
• Alternative dispute resolution.
• Alternative Dispute Resolution legislation.
• Arbitration.
• Arbitration v Adjudication.
• Breach of contract.
• Causes of construction disputes.
• Conciliation
• Contract claims.
• Contract conditions.
• Dispute resolution.
• Dispute resolution board.
• Expert determination.
• How does arbitration work?
• Joinder.
• Pay now argue later.
• Pendulum arbitration.
• Mediation.
• PFIs and adjudication.
• The Housing Grants, Construction and Regeneration Act.
• The role of the mediator.
• The Scheme for Construction Contracts.

[edit] External references

• NEC contract.
• NEC adjudicators.
• Association of Independent Construction Adjudicators.
• PACE Guide to the Appointment of Consultants and Contractors P383.
• Technology and Construction Solicitors Association (TeSCA).

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