In this series, Natalie Pilagos answers some frequently asked questions in relation to adjudication, which is in practice, the primary forum of dispute resolution for construction disputes.
Where did adjudication come from?
By the 80’s, unfair payment practices in the construction industry were common. Litigation to recover payments took too long and was too expensive. It was recognised by government that a swifter and cheaper method of dispute resolution was needed to recover monies due. After industry wide consultation the statutory right to adjudication for construction contracts was born. The aim of adjudication was to improve cash flow in the construction industry.
Enter, Part 2 of The Housing Grants, Construction and Regeneration Act 1996 (otherwise known in the industry as the “Construction Act”).
The Construction Act also set out The Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme). The Scheme sets out the rules which will apply to an adjudication where no other rules are specified in a qualifying contract.
Adjudication referrals have increased significantly from 185 Referrals a year when it first was introduced in 1998 with 1945 Referrals a year at the last count.
What is adjudication?
A relatively quick way of obtaining a binding decision on a construction dispute. The Construction Act provides that a party to a construction contract can refer any dispute to adjudication at any time by serving a Notice of Adjudication.
Following the exchange of submissions between the parties, an adjudicator delivers a binding decision, which can be quickly enforced in the court if the losing party does not comply with it.
Who pays the costs of adjudication?
Usually, each party pays their own costs of adjudication. This is one advantage of adjudication compared to litigation in that there is no risk for the loser of having to pay the “winning” party’s costs.
However, this does not stop parties seeking to find novel ways of attempting to recover their adjudication costs – although such attempts are rarely successful. For example, it is not unusual to see contractors seek to attempt to recover the costs of their expert reports given in evidence in a previous adjudication as part of their final account (although such an approach has no sound legal basis).
Who pays the adjudicator’s fees and expenses in adjudication?
The parties are jointly and severally liable for the adjudicator’s fees and expenses. This means that if one side does not pay a sum that it is directed to pay it can be recovered from the opposing party. The adjudicator has broad power to decide who pays the adjudicator’s fees and expenses and there are no fixed rules to determine how to apportion these.
The fees of the adjudicator can vary greatly from a few thousand for smaller disputes to tens of thousands for larger disputes. To an extent the fees depend on the professional discipline of the adjudicator. In practice, the more submissions that are made the higher the adjudicator’s costs will be. It is worth bearing in mind that it can be difficult to challenge an adjudicator on their costs (which only have to be reasonable as there is no set scale). The courts tend to take a robust approach to ensuring the adjudicator is paid, unless the fees are obviously unreasonable.
For disputes under £50,000, the Construction Industry Council have introduced the Low Value Disputes Model which parties may consider incorporating into contracts. It also includes a mechanism for the adjudicator’s fees to be agreed in advance for disputes over £50,000. The Technology and Construction Solicitors Association has introduced a similar procedure for claims up to £100,000 where the unpaid sum is a liquidated sum (rather than a sum which has not been agreed).
It is also important to note that different adjudicators have their own terms and conditions. It can be difficult to negotiate any change to these.