A Guide to Adjudication in the Construction Industry

Weightmans, Leicester

Introduction

The purpose of this guide is to provide a brief outline of adjudication in the construction industry for those who have little or no  experience of it. It is aimed at project managers, contract managers, property and estates personnel, highways engineers and lawyers.

The guide is intended to be practical and takes the form of a question and answer session.

Q: Why do I need to know about adjudication?

A: Consider this scenario.

Your highways department has engaged a contractor to carry  out a project for a large road widening scheme. You are aware that the contractor has claimed sums alleged to be due under the contract for extra work and for unforeseen ground conditions. The authority’s project manager has resolutely refused to certify any further sums due.

One day, the project manager sends you something called a Notice of Adjudication that he has received from the contractor. It may surprise you to learn that you will have to compile a full statement of the authority’s reasons for rejecting the claim, together will all evidence and documents relied on, within a matter of two or three weeks.

Q: It’s no problem surely? After all, it is not like receiving a High Court claim form?

A: Wrong. In many respects, it is worse. It will certainly require more urgent action than is required on receiving a High Court claim form.

Within no more than 7 days of receiving the Notice of Adjudication you will receive what is called a “Referral Notice”, together with details of a person (the adjudicator) appointed to decide the issue. The Referral Notice is the document setting out the contractor’s claim in full, with supporting evidence, including any witness statements and expert reports. Very often the Referral Notice and the supporting documents will run to several lever arch files.

You will have to draft and serve a “Response” within a period of 7 -14 days from receiving the Referral Notice. What’s more, the adjudicator will make a decision 28 days from receiving the Referral Notice – or 42 days, if the contractor agrees to extend the time.

Q: What? You are telling me that I only have 7 or 14 days to put in this Response? I usually get 2 – 3 months even in the High
Court!

A: Adjudication is different. Bear in mind that the adjudicator needs a good portion of that 28/42 – day period to consider the parties’ cases and to write his decision. So he will want to see your case as soon as possible.

Q: These adjudicator people are just private individuals aren’t they? And what’s the status of this “decision” that you talk about? If I don’t like the decision, can’t I just ignore it, or  maybe appeal against it to a court?

A: Adjudicators are generally quantity surveyors, building surveyors, engineers, architects or lawyers. So long as they are properly appointed under the Housing Grants Construction and Regeneration Act 1996 – usually called the “Construction Act” for short – any decision that they make is enforceable in the High Court, just like a court judgement. And, as you know, you have to pay up on a court judgement.

Q: Fair enough, I can’t just ignore a decision. Still, if the adjudicator has got the law or the facts wrong, surely I don’t have to pay? No court would enforce an adjudicator’s decision that was wrong on the law, I assume.

A: Wrong again, I’m afraid. There are only very limited grounds for resisting an application in the High Court to enforce an
adjudicator’s decision. These include a serious breach of natural justice (the breach must be serious, as it is understood that adjudication is, by its nature, a rough and ready procedure); or a reasonable feeling n the part of one of the parties that the adjudicator should not have dealt with the case because of a reason amounting to possible bias; or the adjudicator exceeding his jurisdiction – for example, dealing with some matter that he was not actually asked to decide. These are all quite rare.

Specifically, the adjudicator’s decision will be enforced, even if it was wrong in law, or even if he got the facts wrong.

When Parliament enacted the Construction Act it clearly intended that adjudication was to provide a quick and cheap method of dispute resolution for the construction industry. The courts have made clear from the outset that they will carry out the intention of Parliament, except in rare cases coming within any of the exceptions above. In practice, very few efforts to resist enforcement have succeeded.

Q: I remember reading somewhere that adjudication brought in mainly to help subcontractors who have cashflow problems
with main contractors?

A: That was its original purpose, yes. But it applies to any “construction contract” as defined in the Act. This covers most building and engineering contacts that you are likely to get involved with. And the value of a dispute is immaterial. You can adjudicate a dispute of £500 or £10 million.

Q: Ok. So if I lose I have to pay up (except in one of those rare cases you mentioned above). Does that mean there is nothing
else I can do?

A: Not quite. Adjudicators’ decisions are “binding but temporary”. That means that, although you have to pay up on a decision immediately, you can take the whole dispute on to litigation in the court (or arbitration, if the contract has an arbitration clause) – just as you were always entitled to do, of course. However, bear in mind that it will take at least a year to get a case through to a full trial and in the meantime, the contractor will keep his money.

Q: Well it seems that I need to make sure I do not lose. I assume I will get a chance to put my case at the hearing, at least.

A: Usually, there is no hearing. Remember those short time limits. Most adjudications are decided on the paperwork. In some cases, an adjudicator may suggest a hearing to enable him to meet and discuss the issues with relevant experts, for example, or to hear oral evidence. But that is not the norm.

Q: What happens about legal and expert costs?

A: Each side bears its own. But the adjudicator will usually order the “losing” party to pay his (the adjudicator’s own fees and
expenses). These could be anywhere between £5,000 and £25,000 plus VAT.

Q: So let’s just recapitulate. I get virtually no notice of a pending adjudication; I have to draft a full Response, complete with all relevant documents and statements within 7 days of getting the claim (or 14 days if I am lucky); there is usually no opportunity for me to put my case in person; the adjudicator is allowed to make a decision that is wrong in law or mistaken on the facts, and I still have to abide by it; a decision could be for hundreds of thousands, or even millions, of pounds; and if I lose I also have to pay the adjudicator’s costs, as well as my own?

A: That’s about it.

Q: I think we had better sit down so that you can tell me how best to avoid this sort of problem.

How to cope with adjudications – tips for the unwary

Q: First, is there anything that I could do at the drafting stage, when I am preparing the contract, to help myself if I am faced with adjudication later?

A: Parties cannot “contract out” of their right to adjudication, because adjudication is a statutory right. Nor can a contract provide that (say) a party who starts an adjudication – the “referring party” – has to pay all of the costs.

There are some points that you could consider at drafting stage, however. Perhaps the most significant is to provide that the time for service of a Response will be not less than 14 days from the date of Referral Notice. Then at least you will have a reasonable period of time. If you are going to do this, you need to ensure that your contract complies with certain requirements in section 108 of the Construction Act, otherwise you will be bound by a statutory instrument called the “Scheme for Construction Contracts” which leaves response times in the discretion of the adjudicator.

You might also want to specify a particular adjudicator, or nominating body. Employers, for example, often prefer to have architects or engineers who tend to act more on the employer’s side, rather than those who act primarily for contractors. So some employers prefer the appointing body to be the Royal Institution of British Architects (RIBA) or the Institution of Civil Engineers (ICE) rather than the Royal Institute of Chartered Surveyors (RICS).

Q: Right. Now, how do I stop myself getting ambushed in the manner that you outlined earlier?

A: You cannot eliminate the threat completely. But there are steps that you should take well in advance of adjudication, if possible; and especially if you sense that an adjudication is imminent.

  1. Ensure that all paperwork is kept in order, ready for use in adjudication. You will not want to be wasting time putting correspondence in date order in the precious few days that you have for drafting your Response.
  2. Ensure that your site people are getting their best points across in correspondence or emails with the contractor. Points made during the course of the project are often more persuasive to an adjudicator than those made in formal submissions during an adjudication itself.
  3. Take photographs of key matters on site to show (for example) lack of progress, or lack of labour on a particular day, and make sure that these are properly labelled and dated. A note should state what each photograph shows.
  4. Consider the preparation of draft witness statements from key site staff well in advance. Again, you will have little time do this once an adjudication has started. A draft statement can then easily be amended and slotted into a Response bundle if adjudication is commenced.
  5. Consider whether you need to appoint an independent expert – e.g. a quantity surveyor or a delay analyst – to prepare a report ready for any adjudication. Again, this will be very difficult to organise once the adjudication has commenced.
  6. Don’t give up on negotiation! It will save you and the other side time and costs. But if you are reasonably prepared on points 1-5 above, then at least you will not be negotiating with a gun at your head.

Q: OK. All efforts to negotiate have failed and I have now received a Notice of Adjudication. I understand that the claim (Referral Notice) will be on my desk in no more than 7 days. I also understand that I will have no more than 7/14 days after that to serve a Response. What next?

A:

  1. Check the appointing body in the contract. Is it the right one? Also, although you are unlikely to be able to persuade that body to appoint a particular adjudicator, you may be able to suggest to them that, for example, if the dispute is about piling, a specialist in that area would be useful.
  2. Consider with your lawyers, whether there are any grounds for challenging the jurisdiction of any adjudicator appointed. For example, is there actually a “construction contract” under the Act at all? (the parties may have been working only to a letter of intent, though that does not necessarily mean that there is no “construction contract”). Is there a dispute? Sometimes a party tries to adjudicate without having put parts of its claim to the other.
  3. Get your team mobilised to deal with the preparation of the Response.

Q: It is now time to draft a Response. What are your tips?

A: Tell your project team to cancel all leave for the next week or two! Seriously, you should have already done some work on
the Response in advance, and have something prepared. You will need to plan a timetable, working backwards from the
date when you will have to serve the Response.

In drafting your Response, make sure that your own case is properly presented to the adjudicator, in a convincing and succinct manner, with supporting evidence. Sometimes it is not possible simply to answer every paragraph in the Referral
Notice, or to deal with every point raised by the Claimant. Concentrate on the key issues. Remember that the adjudicator will be short of time as well, and will be grateful for someone who can signpost him to the important areas, and put their case clearly.

Think about logistics. Make sure that photocopying and other facilities, internal or external, are available. You will need at
least 2 copies of everything, one for the adjudicator and one for the contractor.

Sometimes the adjudicator allows time for a Reply from the referring party and even a short response to this (a “Rejoinder”) form the respondent. But you should work on the basis that the Referral Notice and Response are usually the two most important documents that the adjudicator will look at.

Q: I have now had the decision. We lost. Do I have to pay up, and can I “appeal”?

A: You will usually have to pay up, but consider with your lawyers whether there are any grounds for challenging this e.g. on the basis of a lack of jurisdiction of the Adjudicator, or a serious breach of natural justice. These grounds are very limited. If any such grounds were to apply, you should have been considering them during the adjudication, and made appropriate representations to the adjudicator as early as possible.

You cannot “appeal” an adjudication decision, but you are always free to go to the High Court or arbitration (depending on which is specified as the forum for dispute resolution in the contract) at any time. So you could, for example, go immediately to the High Court or arbitration to get the matter looked at again. The judge or arbitrator will look at the whole case afresh. The process will not be a review or appeal of the adjudicator’s decision.

In the meantime you must pay up on the decision.

If you start High Court or arbitration proceedings, and if there appear to be good grounds for thinking that you might win when the dispute goes on to that level, you might be able to persuade a contractor to do a deal before more costs are expended. But if the contractor has just won, he will feel that he has the better bargaining position!

Q: Where can I go to learn more about this?

A: The relevant legislation is the Housing Grants Construction and Regeneration Act, sections 104 to 117. The Act was
amended by the Local Democracy, Economic Development and Construction Act 2009. The amendments affect contracts
made after 1 October 2011, so check whether you are governed by the original, or the amended legislation.

There is also a relevant statutory instrument, the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998/649). This was amended by a statutory instrument SI 2011/2033, and, again, the amendments apply to post-1 October 2011 contracts. The Scheme sets out procedures that apply where the construction contract does not fully comply with certain requirements in section 108 of the Act. It is also incorporated anyway into many standard form construction and civil engineering contracts for convenience.

The standard textbook on adjudication – in fact, the “bible” in this area – is Coulson on Construction Adjudication 2 Edition, 2011 (published by Oxford University Press). Mr Justice Coulson was the head of the Technology and Construction Court in London, and formerly a well-known specialist construction law barrister.