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Construction Adjudication in the UK – a Practical Guide

Construction Adjudication is a ‘rough and ready’ dispute resolution process available to almost all parties to a written (or evidenced in writing) construction contract. It’s primary purpose is to provide an interim solution (although most often the parties will accept the decision as final) to a dispute in order to maintain cash flow through the supply chain.

It exists due to primary and secondary statutory legislation, colloquially called the Construction Act, first enacted in 1996 (and in force from 1998) and amended in 2009 (in force from 2011).

The Primary Legislation

The term ‘Construction Act’ refers originally to the Housing Grants, Construction and Regeneration Act 1996 (now called the old Act) and recently to the Local Democracy, Economic Development and Construction Act 2009 (now called the new Act).

Both of those Acts (the primary legislation) deal in whole with a variety of matters, of which those relating to construction are a very small part. However, that small part is extremely important to anyone providing services in the construction supply chain, seeking payment and resolving disputes.

The Secondary Legislation

In addition to the primary legislation, secondary legislation exists called The Scheme for Construction Contracts (England and Wales) Regulations 1998 and The Scheme for Construction Contracts (England and Wales) Regulations 1998 (Amendment) (England) Regulations 2011.

Those Schemes provide ‘model terms’ which are incorporated into a construction contract when required by the primary legislation.

How it works

Generally the Acts accomplish two things: (1) improve the payment process within the construction supply chain; and (2) provide a quick and straightforward method of dispute resolution called adjudication.

This article deals solely with Adjudication; payment is dealt with in another article which can be accessed by clicking here.

The Acts require every construction contract to contain certain provisions regarding Adjudication and, if the contract fails to provide such provisions or provides contrary provisions, then the Act prescribes that those provisions are removed and replaced, in their entirety, by those in the Scheme.

A Construction Contract

Before moving on to the detail, it is worth defining what is meant by a Construction Contract.

Generally this is any contract for the provision of services within the construction supply chain excluding those contracts with a residential occupier.

In addition, such contracts must be in writing or evidenced in writing (although the new act also catches oral contracts in certain circumstances).

The Adjudication Provisions

The provisions of the Act are:

(1) A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section.

For this purpose “dispute” includes any difference.

(2) The contract shall—

(a) enable a party to give notice at any time of his intention to refer a dispute to adjudication;

(b) provide a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within 7 days of such notice;

(c) require the adjudicator to reach a decision within 28 days of referral or such longer period as is agreed by the parties after the dispute has been referred;

(d) allow the adjudicator to extend the period of 28 days by up to 14 days, with the consent of the party by whom the dispute was referred;

(e)impose a duty on the adjudicator to act impartially; and

(f) enable the adjudicator to take the initiative in ascertaining the facts and the law.

(3) The contract shall provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration (if the contract provides for arbitration or the parties otherwise agree to arbitration) or by agreement.

The parties may agree to accept the decision of the adjudicator as finally determining the dispute.

(3A) The contract shall include provision in writing permitting the adjudicator to correct his decision so as to remove a clerical or typographical error arising by accident or omission.

(4) The contract shall also provide that the adjudicator is not liable for anything done or omitted in the discharge or purported discharge of his functions as adjudicator unless the act or omission is in bad faith, and that any employee or agent of the adjudicator is similarly protected from liability.

If the contract fails to make provision for the above, or contains contrary provisions, the Adjudicator procedure in the Scheme applies instead.

The Procedure

Following the crystallisation of a dispute, either party can serve a notice on the other party of its intention to refer the dispute to Adjudication.

The notice must identify the dispute and set out the remedy. The Adjudicator’s power and jurisdiction comes from the notice and the contract; so the notice must be precise and the Adjudicator can only be required to decide a matter within the scope of the contract.

The contract may contain specific communication requirements for notices or for the notice of Adjudication in particular; these must be complied with.

Within 7 days of the issue of the notice, the referring party (the party commencing the proceedings) must serve upon the other party its Referral (i.e. its statement of case). If the Referral is not served within that time, the Adjudication will likely be void. The Referral must contain a detailed explanation of the referring party’s claim in respect of the dispute identified within the notice, along with any supporting documentation.

Additionally, within that 7 day period, the referring party must secure a the appointment of an Adjudicator. This will either be a person named in the contract or, if no-one is named or if the named person cannot accept the appointment, by using the nominating body named in the contract. If no nominating body is named, by using any nominating body.

The nominating body will usually charge a fee which is paid by the referring party; some nominating bodies provide the service free of charge.

Following his appointment, the Adjudicator will set out a timetable; this will usually permit the other party to issue a Response to the Referral, for the referring party to issue a Reply to that Response and for the other party to issue a Rejoinder to that Reply.

However, the Adjudicator may only permit one submission by each party. Any submissions made without the Adjudicator’s permission will be ‘unsolicited’. The Adjudicator cannot ignore those submissions, but the weight given to them will depend on when they are issued within the overall timetable.

The Adjudicator must make his decision within 28 days of the Referral. That time period can be extended to 42 days with the permission of the referring party or further with the agreement of both parties.

The Adjudicator’s decision will be binding on the parties (and enforceable in court) unless the Adjudicator acted outside his jurisdiction or was biased towards one party.

There is no appeal process, however the parties are able to take the same dispute to litigation (or arbitration if the contract contains an arbitration agreement).

Some contracts (such as NEC3) require the parties to put any dispute to adjudication first before commencing any other proceedings.

However, any contractual provision which requires some initial action of the parties (such as meeting to negotiate) before Adjudication proceedings can be commenced will be void.

The Costs

Ordinarily, each party will bear their own costs; the Adjudicator will decide how his costs are shared between the parties, normally in relation to success.

If both parties agree, the Adjudicator is able to decide that one party will bear the other’s costs, again, in relation to success.

It used to be possible to draft contract terms such that one party always paid the entire costs of the Adjudication, i.e. its own costs, the other party’s costs and the adjudicator’s costs.

Whilst this seems unfair, it was deemed to be permitted under the old Act.

However, case law and the new Act have attempted to make such provisions void; it is debatable whether this has been successful. At the moment, it may still be possible to draft Act compliant terms which makes one party liable for the other party’s costs.

For further information, please contact us.

Written by Steven Evans who is a construction contract and commercial expert.

This article is for general information purposes only and should not be relied upon in any specific situation without appropriate legal advice. If you require that advice or wish to discuss any of the issues raised in this article, please contact us.