Building things is expensive. People’s time and materials can be used very quickly in construction projects. In those circumstances cash flow is crucial. In order to prevent paying parties, be it employers or main contractors, taking unfair advantage of other contractors and subcontractors, Parliament introduced a relatively low cost and speedy process to resolve disputes in construction contracts and cascade money down through the industry.
Also, there may be a contractual entitlement to refer a dispute to adjudication. This is particularly relevant to building works in relation to an individual’s home as the statutory entitlement to refer to adjudication does not apply to domestic building works.
It results in an interim decision with the parties should comply pending final determination of the question by other means and is enforceable through summary proceedings.
The adjudicator can be anybody the parties agree it to be. He or she is normally a construction professional of some sort, be it a surveyor, architect or lawyer. The parties can agree a named individual at the outset of either the contract or the adjudication proceedings, but usually the contract simply stipulates an adjudicator nominating body such as RICS, Royal Institute for Chartered Surveyors; RIBA, Royal Institute of British Architects; or the Chartered Institute of Arbitrators.
The adjudicator nominating bodies charge a fee of several hundred pounds for checking the availability and appropriateness of the adjudicator before nominating him.
Once the dispute has been identified, the referring party will send the other party a notice of intention to refer a dispute to adjudication, which sets out the parameters of the question (and it is normally phrased as a single issue) to be decided. He then notifies the adjudicator nominating body, or the agreed adjudicator, providing him with a copy of the same notice. This must be done in this order or the adjudicator’s decision may not be enforceable. The adjudicator then writes to the parties providing them with his terms and conditions and sets out the proposed timetable and procedure for the adjudication.
The referring party will then send the adjudicator and the other side the referral notice, which is a document setting out what is claimed and why, together with all supporting documentation. In something like a final account dispute, this may run to many lever arch files.
The responding party must prepare a response which is a document setting out their case and arguments, together with copies of their supporting evidence. There is normally around one week to prepare this. The referring party may prepare a reply to the response, the responding party may prepare a rejoinder to the reply. Sometimes there is even a surrejoinder from the referring party.
There is not normally a hearing. The adjudicator simply prepares his decision based on the documents before him. He then issues both parties with his decision.
Normally the entire process from the date of the referral notice to the parties receiving the decision is 28 days. This can be extended under some rules, or by agreement, but not normally by more than a few weeks.
Adjudication is much cheaper than formal litigation. A lot depends upon the breadth of the question being addressed, a single question of law regarding the wording of the contract will be very much cheaper than a full-blown final account adjudication. It will depend upon how much evidence has to be marshalled and whether the involvement of experts or Counsel is necessary. A lot will also depend upon how much of the work the parties are willing to do themselves.
A short, small-point, adjudication may be a few thousand pounds; a much larger adjudication can cost tens of thousands. Until very recently, neither party could claim its legal costs of adjudication from the other party. The law may be changing on this as a result of recent debt recovery regulations, however. We await a Court decision on this issue in due course, but in the meantime it is generally expected that there will be no cost recovery between the parties in the adjudication.
The adjudicator’s fee is a joint and several liability for both parties though the adjudicator’s decision usually includes apportionment of his fee between the parties depending upon which party he deems to have been most successful.
Once the parties have the adjudicator’s decision, they should comply with it. This will normally involve both parties paying their share of the adjudicator’s fee and the loser paying the determined sum to the recovering party, normally within seven days.
In the absence of compliance with the decision, there is an abbreviated High Court procedure for enforcing an adjudicator’s decision. The London Technology and Construction Court has devised a particularly successful and effective short enforcement application procedure. In essence, in the absence of very few technical grounds, the adjudicator’s decision will be enforced against the paying party. The loser will also have to pay the winning party’s legal costs of the enforcement proceedings. These will be normally around £10,000 to £12,000, but could be higher depending upon the complexity of the arguments presented.
It is absolutely crucial that the rules of adjudication are followed otherwise the parties may end up with an unenforceable decision which would probably just result in duplicated costs as the parties re-run the process.