A guide to adjudication in the construction industry

The legislation

This concept was introduced by the Housing Grants, Construction and Regeneration Act 1996 (the Act) which came into force in 1998. It was amended in 2011 by the Local Democracy, Economic Development and Construction Act 2009. Adjudication is dealt with in just six sections of the Act – sections 104 to 108A. Sections 114-117 are also relevant.

It applies to all construction contracts and parties cannot contract out of it. It has led to considerable debate as to what is a construction contract. Broadly speaking it covers construction works where supply and installation is involved. It also covers agreements for architectural, design or surveying work.

The Act sets out specific exceptions at section 105 (2) (a) to (e) and includes supply only contracts and works in the oil and gas industry. 

There is also a specific exception where one party to the contract is a residential occupier (ie where the building is a dwelling which one party occupies or intends to occupy as their residence).

There is also power to disapply the provisions.

Until 2011 the adjudication process did not apply to oral contracts, only to those in writing, but it now applies to both.

The most recent versions of the standard forms of building contract address the adjudication process.  In many cases, the JCT for instance, the process is included regardless of whether the Act actually applies. So a residential occupier who signs up to an un-amended JCT IFC 2016 (which contains adjudication provisions) is subject to adjudication even though adjudication under the Act does not apply.

What does the adjudication process involve?

The Act requires the contract to include certain provisions in writing, namely: 

• to enable a party to give notice at any time of its intention to refer a dispute to adjudication
• to provide a timetable with the object of securing the appointment of an adjudicator and referral of the dispute to the adjudicator within 7 days of the notice - the adjudicator usually gives the responding party between 7 and 10 calendar days to provide its defence. It may then give the referring party between 3 and 5 days to serve a reply
• to require the adjudicator to reach a decision within 28 calendar days of the referral or such longer period as is agreed by the parties after the dispute has been referred
• that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration or agreement
• provision for the adjudicator to correct a clerical or typographical error
• that the adjudicator is not liable for anything done save for acting in bad faith.

It should also be noted that:

• the rules on disclosure do not apply. Each party only discloses the documents that they want to rely on, although an adjudicator can ask to see other documents
• there is no hearing and it is up to the adjudicator whether a meeting is convened.

What if the contract does not include these provisions?

Where the contract does not make provision as required by the Act, then the Scheme for Construction Contracts (England and Wales) Regulations (as amended) (known as the Scheme) is deemed to apply.

The Scheme is widely used. For instance, the JCT 2016 suite refers to it.

What weight does an adjudicator’s decision carry?

The construction contract must state that the decision is binding until the dispute is determined by legal proceedings, by arbitration or by agreement. In other words it is temporarily binding. The ethos is “pay now, argue later.”

Summary judgment procedure

If a party fails to make payment, in contravention of an adjudicator’s decision, then the party entitled to payment can seek judgment in the Technology and Construction Court (TCC). This court has developed a fast track procedure for summary judgment in such cases. The process is set out in detail in section 9 of the TCC Guide. The Guide states that a judge will usually give directions within 3 working days of the application and the directions will include an abridgement of time for acknowledgement of service of the proceedings. The Guide goes on to state that the enforcement hearing will usually take place within 28 days of the directions being made.

The court’s position is to take a robust stance and judgment will usually be granted. There have been occasions where issues of jurisdiction or natural justice have been successfully taken but these are very much in the minority.

The court will also consider if a stay of execution of the judgment should be granted. Again, the court has adopted a robust approach and unless the receiving party is insolvent and the paying party has commenced legal proceedings or arbitration for the whole matter to be reviewed, there is little chance of a stay being granted. Even where this has happened a stay is by no means guaranteed.

Cost of adjudication

Although there is provision in the Act for costs to be awarded, in almost all cases each party pays their own costs of the adjudication. The adjudicator decides which party should pay their fees and expenses. However the parties remain jointly and severally liable for the adjudicator’s fees and expenses, so if one party does not pay, the adjudicator can (and sometimes does) look to the other party to do so.

Is adjudication a success?

Adjudication is rough and ready justice, which it was always intended to be, and there are those who will feel aggrieved by that. It is also sometimes used in cases which are felt to be inappropriate for such a process – for instance, professional negligence claims.

However on the whole it is perceived to have done its job of reducing payment issues in the construction industry and dealing with disputes promptly. This is evidenced by other jurisdictions such as the Republic of Ireland, adopting a similar approach.

There is no doubt that adjudication is here to stay and it is important to understand in advance how it works – the timetable is so tight that there is little time to learn during the course of an adjudication.