The benefits of adjudication in construction disputes

Ron Cheriyan, Sharpe Pritchard

Adjudication is now an established method of dispute resolution in the construction industry in the UK. It has had a marked effect on the other procedures for resolving disputes – prior to its inception in 1998, the main means of resolving construction disputes in the UK was by either arbitration or litigation. Adjudication has since transformed the construction landscape, taking its place as the industry’s preferred method of dispute resolution.

Public authorities often engage contractors on large construction projects and come under intense scrutiny when problems arise. Projects rarely finish on time and disputes will often arise in relation to payment. It is important for authorities to recognise and understand the benefits of adjudication, and to distinguish it from the other main forms of dispute resolution.

A party to a construction contract has the right to refer to adjudication any dispute arising under the contract. The process is quick – effectively 28 days (42 days if the referring party agrees) from start to finish – and is cheaper than many other forms of dispute resolution. The decision of an adjudicator is expressed to be temporarily binding, which means that it is binding until it is finally determined by a judge or arbitrator or by the parties reaching agreement.

If either party is unhappy with the procedure or the outcome, they may refer the dispute to litigation or arbitration, although in practice this happens infrequently. This is attractive to all parties as it allows projects to continue even if the parties are indecisive. For instance, contractors can unlock payments without having to wait for a judgment or an arbitration award. This compares favourably to litigation where there is a risk of the contractor becoming insolvent due to continued stagnation of available resources.

The timescale of the adjudication procedure is extremely tight – effectively 28 days from start to finish, as shown in the flowchart opposite.

The adjudicator is not bound by strict rules of evidence, although procedural rules may be imposed by the nominating body. This is similar to the position in arbitration where strict rules of evidence also do not apply, although procedural rules may be based on the organisation’s guidelines. This differs from litigation where parties must comply with the rigours of the Civil Procedure Rules.

Another feature of adjudication is that parties must bear their own costs in referring the dispute and presenting it during the adjudication. The adjudicator has no power to award costs unless this is expressly provided for in the contract or the parties agree.

Despite certain challenges, adjudication is an effective and useful means of resolving disputes that require quick determination, such as loss and expense claims and extension of time claims.

Unless the dispute is of public importance, there are obvious benefits in choosing a private and confidential method of dispute resolution. Like arbitration, adjudication permits parties to a dispute to maintain privacy, although details of the dispute may become public if a party seeks to enforce an adjudicator’s decision in the courts. This compares favourably to litigation where judgments are routinely reported and publicly accessible.

One of the key risks in adjudication is the risk of ambush. The referring party has freedom to prepare the notice of adjudication and referral without any time restriction. A responding party has an extremely limited timeframe (usually 7-14 days) in which to respond to the referral notice. A referring party may choose to use this tactical advantage in order to launch an adjudication with little or no warning.

However, is the risk of ambush unique to adjudication? A claimant has similar freedom to prepare the claim form without any time restriction (subject of course to the strictures of the Limitation Act). Under Civil Procedure Rule 15.4, a defendant is required to file the defence 14 days after service of the claim form. While this gives defendants slightly longer to respond to the claim form, it is nonetheless a short timeframe.

Despite certain shortcomings, adjudication is viewed to have been largely successful in resolving disputes in the construction industry in the UK. It is a nimble animal compared to the unwieldy beasts of litigation and arbitration. Many common law countries have adopted similar statutory adjudication schemes in an attempt to ease the cash flow difficulties that can plague contractors.

The message is clear – adjudication works and is here to stay.