Arbicon – Construction Claims Consultancy specialising in Adjudication and ADR – have put together this complete guide for adjudication in construction contracts, explaining what it is, who can use it, and what to expect
What is Adjudication? Adjudication is an Alternative Dispute Resolution (ADR) process that is fast, cost effective and in the case of Commercial Construction Contracts there is a legal Statutory Right to adjudicate at any time. It lasts for circa 28 days and provides a temporary legally binding decision on the dispute, which must be complied with immediately. If your case is in Court, you can still adjudicate and the Decision will most likely settle dispensing with the Court case and saving further misery and costs associated. You have an absolute right to start adjudication unilaterally.
Who can use Adjudication?
If you are a Building Employer, Main Contractor or Subcontractor and have a commercial construction contract, you have a statutory right to appoint a construction adjudicator and refer any construction dispute to adjudication, without a specific clause needed in your contract. Alternatively, adjudication can also be used if your contract includes express provisions.
Who takes part in an Adjudication in construction contracts?
There are usually three parties involved in an adjudication in construction contracts:
- The referring party
- The responding party
- The construction adjudicator
What type of dispute can be resolved through Adjudication in construction contracts?
The adjudication process is widely used for resolving many different types of construction disputes including:
- Payment issues
- Interim payments and final accounts
- Construction delays and disruptions
- Extension of time claims
- Construction defects
- Breach of contract / repudiation / walk outs
- Contract termination
- Professional negligence
What you need to know about the process:
1) The dispute must be crystallised – If Referring a matter, you need to make sure all arguments and documents you seek to rely on have first been brought to the attention of the other party to allow them the opportunity to confirm, deny or ignore the claim. It is essential to have a “position” in any event to put the case forward so serving your current position to the other party is vital.
2) Notice of Adjudication (“NOA”) – The NOA starts the process and sets out the dispute to be decided. It is important to make sure this is written accurately as it gives the Adjudicator his jurisdiction. It is normally very brief and set out in a few pages. It is important to prepare the NOA after the Referral Notice is complete to avoid discrepancies.
3) Application for an Adjudicator – After service of the NOA the Referring Party applies for an Adjudicator, which must be done within 7 days of service of the NOA. The request depends on what is in the contract. If there is nothing in the Contract, the Scheme applies and the request can be made to any nominating body. Typical nominating bodies are the RICS, CIArb, CEDR and the RIBA. Most have nominating fees of between circa £250 and £450, which cannot be recovered except by agreement after the adjudication has started.
4) The Adjudicator must be appointed by the nominating body (if he/she is not named in the contract) within 7 days of service of the NOA. The Adjudicator sends his/her terms of business and any initial directions. These may include an initial timetable, but typically he/she will say how submissions are to be made, e.g. submissions by email only and that each party must copy any communications to the Adjudicator to the other party simultaneously. Unilateral telephone calls are normally banned. The Adjudicator must also have no conflicts of interest and is obliged to be unbiased and impartial. The
Responding party cannot object to the appointment and the Referring party can opt not to refer the matter after which the process will end. Service of the Referral Notice starts the adjudication 28-day timetable and the process. If both parties wish to revoke the appointment after commencement, this can be done by party agreement. The Adjudicator must resign if there are any conflicts of interest that come to light or the dispute has been the subject of a previous Adjudicator’s Decision.
5) The Adjudication Charges Fees typically between £250 and £350 per hour plus expenses and VAT. The Adjudicator decides who pays his/her fees and expenses normally at the end of the process. It is normal for the loser to pay, however, the Adjudicator may decide the fees are to be apportioned between the parties. The Adjudicator may also direct that fees in the first instance are to be paid by the Referring party and then these are added to any liability the Respondent has as set out in the Decision. The Adjudicator may also ask for fees to be paid prior to the issue of the Decision. However, the Adjudicator cannot hold back his/her Decision as a lien which must be issued by the agreed Decision date. It is also important to know that the parties have joint and several liability for the Adjudicator’s fees, which means if the liable party does not pay or becomes insolvent, the other party must pay. If that happens the party that should have paid becomes liable to the party that has to pay on its behalf.
6) Party Costs including the nominating body fee, representation cost or other legal costs are not recoverable in adjudication; this has been the subject of much debate. The current position is such costs may only be recovered if an agreement is made between the parties after the start of the adjudication.
7) The Referral Notice must be served to the Adjudicator within 7 days of the NOA and the 28-day timetable begins. The Referral, as it is known, is substantiation of the case set out in a legal narrative and accompanied by documentary evidence in support. It is in effect the claim and the Referring party’s position. The Adjudicator will then set the 28-day timetable.
8) The timetable is always determined by the Adjudicator, not the parties, unless the contract dictates express provisions. Typically, he/she will ask for the Response to Referral (the defence) to be submitted in 7 days. Although not guaranteed, it is normal to make a Reply to Response thereafter, although an application for permission to do this of normally up to one week is required. The Adjudicator may also set a provisional date for an Adjudicator’s meeting. The date by which his Decision is to be made will also be stated, which must be 28 days after the Referral. Public Holidays add to the 28-day period and the parties with the Adjudicator can agree more time in any event. The Referring Party can unilaterally extend the 28-day period by up to 14 days according to the
Construction Act, whilst the Scheme makes it the whole 14 days. After that it must be by party agreement. The extension to the timetable can be problematic if the parties are unable to agree anything. In practice, the Adjudicator is always aware of this and manages to work a solution.
9) The Response to Referral (the Defence) is submitted by the Responding Party normally within 7 days of the Referral, however, it is not uncommon for this to be extended to 14 days. Similar to the Referral, this will provide a narrative and accompanying documentary evidence, addressing line-byline counterargument or agreement to the Referral. There may also be a counterclaim included which will act as a defence. The Response normally triggers a further reply submission.
10) The Reply to response if permitted, is submitted by the Referring Party after the Response is received to put further argument line-by-line against what the Response alleges. It can be a bigger submission than the Referral. That might be due to new material submitted by the Respondent which needs to be dealt with. The Reply is often submitted within a time period of up to one week, so the process moves very fast at this critical point.
11) Further Submissions known as the Rejoinder and the Surrejoinder and more if permitted are then in quick succession submitted to exhaust the arguments or develop a point. The Adjudicator might instead of permitting these submissions, call an Adjudicator’s Meeting to fully understand and exhaust the arguments. Such an instance would be where a site inspection is desirable or there are hundreds of variations in an account that are in dispute.
12) The Decision is then written and published after the submissions are closed off. The parties must immediately comply with the directions made in the Decision. Failure to do so can lead to enforcement proceedings in the High Court, often the Technology and Construction Court which is very swift. There are very few Decisions that fail to be enforced; adjudication is a well-established process now of over 20 years.
13) The Right to Appeal – there is no right to appeal an Adjudicator’s decision and the same dispute cannot be heard again by another Adjudicator. The Adjudicator’s Decision can be completely overturned by the dispute being heard again in a Court or Arbitration (if applicable) unless the parties have expressly agreed that the Decision is Final and Binding, by default the Decision is temporarily binding. In our experience most of all adjudications are not heard again in Court normally on commercial grounds and the matter settles.
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