Back to Basics – Adjudication
Published on 28th Jun 2021
- What is adjudication?
- Can I adjudicate?
- Rules governing the procedure
- Commencing the Adjudication | Appointment of the Adjudicator
The Referral | The Response | Further Submissions | Decision
Parties' Costs and Adjudicator's Fees | Enforcement and challenging a Decision
- Commencing the Adjudication | Appointment of the Adjudicator
What is adjudication?
Adjudication is a mandatory dispute resolution mechanism that applies to the construction industry. It consists of a 28 day procedure (which can be extended) resulting in an "adjudicator" providing a binding decision on a dispute.
Adjudication was introduced by the Housing Grants, Construction and Regeneration Act 1996 (the "Act"), primarily to allow construction disputes to be resolved quickly on an interim basis, thereby allowing more effective cash flow. Due to the rapid timeframes in which an adjudication can take place it is sometimes described as providing "rough justice".
Can I adjudicate?
The first issue to consider before commencing an adjudication is whether there is a right to adjudicate. It may be possible if:
- The contract is a "construction contract" as defined by the Act, in which case there is a mandatory statutory right to adjudicate at any time; or
- there is provision in your contract, in which case there may be a contractual right to adjudicate.
If there is right to adjudicate, the next step is to check if the 'dispute has been crystallised.' In simple terms, this means that the subject matter of the claim has been brought to the attention of the other side and that party has had the opportunity to consider and admit or reject the claim.
Rules governing the procedure
The adjudication procedure will be governed by any process set out in the contract (providing such process complies with the Act).
To the extent the contract does not comply with the Act, the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the "Scheme") provides a default fall-back position. The Scheme's adjudication provisions will take effect as implied terms.
It is important that the applicable adjudication procedure is carefully followed. A failure to adhere it to may result in the decision being invalid and unenforceable.
The Act sets out a tight timetable: the adjudicator's decision must be made within 28 days of service of the Referral.
The 28 day timescale may be extended by up to 42 days with agreement from the Referring Party and beyond 42 days with agreement from both parties and consent of the adjudicator.
Commencing the Adjudication
An adjudication is commenced once a Notice of Intention to Refer the Dispute to Adjudication (the "Notice") is served on the other party. The party issuing the Notice is commonly referred to as the Referring Party and the party receiving it the Responding Party. The Scheme states that the Notice should briefly include the following:
- the nature and a brief description of the dispute and of the parties involved;
- details of where and when the dispute has arisen,
- the nature of the redress which is sought, and
- the names and addresses of the parties to the contract.
The Notice defines the scope of the dispute, so it is very important to get this document right and ensure it is correctly served on the other party.
Appointment of the Adjudicator
Once the Notice has been served, the Referring Party should nominate the Adjudicator. This must be done within 7 days from service of the Notice.
The Adjudicator may be stipulated in the contract. Alternatively, the Referring Party may nominate an adjudicator which the parties agree on, or if agreement cannot be reached, it can apply to a nominating body to make the nomination. Most construction contracts, including the standard forms, provide for a nominating body.
Typically, the parties will need to consider the required skillset of the adjudicator. For example, if the dispute concerns the interpretation of contractual provisions the parties may consider the adjudicator should be legally qualified. Alternatively, a dispute regarding valuation may better suit an adjudicator with a background in quantity surveying.
The Referral must be served within 7 days of service of the Notice. This document sets out in detail the Referring Party's case in detail and is accompanied by supporting documentation including any expert reports, and witness statements.
The Referral will be sent to the Adjudicator and the Responding Party at the same time.
The Responding Party is entitled to respond to the Referral and it must this response within the timeframes imposed by the applicable procedure.
The Response is essentially the Responding Party's defence. It should include the Responding Party's response to the Referral including any supporting documents and authorities. It may also be possible to include any cross-claims (but this will depend on the subject matter and whether the cross-claim falls within the jurisdiction of the dispute).
The parties may request to serve further submissions beyond the Response. It will be for the adjudicator to decide whether they are required.
There is no hearing but it is up to the adjudicator to decide whether a meeting is convened.
The adjudicator's decision is binding unless and/or until the dispute is finally determined by court proceedings or arbitration.
The decision does not have to take any particular form but in most cases, the adjudicator will provide reasons for his/her decision (and he/she should do so, if requested by one pf the parties).
Parties' Costs and Adjudicator's Fees
Although there is provision in the Act for costs to be awarded, in most cases each party pays their own costs of the adjudication.
The adjudicator decides which party should pay their fees and expenses and typically the "losing party" is required to pay them. 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.
Enforcement and challenging a Decision
An adjudicator's decision can be challenged under very limited circumstances. The Technology and Construction Court will enforce the decision, unless the court can be persuaded that:
- The adjudicator had no jurisdiction to make the decision (for example if the dispute was not crystallised); or
- there was a serious breach of the rules of natural justice (the right to a fair hearing, by an impartial tribunal).
The grounds for challenging a decision are fairly narrow and the courts take a robust approach to enforcing the decision. Therefore any challenge to enforcement should be carefully considered and legal advice should be sought.
Some of the main advantages of adjudication are:
- Speed and cost: The timetable is much tighter as compared to other dispute resolution mechanisms which inevitably means costs are kept lower. This can be used to resolve a dispute during the course of a project and can allow cash to flow or provide clarity for the parties as to their rights and obligations.
- Scope of the dispute: The referring party gets to decide the scope of the "dispute" referred. This can be deliberately narrow to allow resolution of a particular issue or matter. While a responding party is generally entitled to raise any defences available to it, it cannot increase the scope of the dispute referred.
- Flexibility: The adjudication process can be more flexible than Court proceedings.
- Selecting the adjudicator: Subject to the applicable procedure, there may be some control over choosing who will act as adjudicator.
On the other hand, some of the main disadvantages to adjudication are as follows:
- Speed of the process: Typically, the Referring Party will be better prepared than a Responding Party. The Responding Party may have very little time to prepare its response. It is common for a Responding Party to complain about the time it has to prepare its Response. The Adjudicator will seek to strike a balance between allowing a fair and reasonable time to respond given the nature, size and complexity of the dispute together with the need for him/her to reach a quick decision within the allowed timetable.
- Rough justice: The speed of the process also means that an adjudicator has less time to a make a decision and often there is a lot of information for him/her to process in order to make a determination. This can lead to an element of 'rough justice'.
- Irrecoverable costs: While the costs of the dispute tend to be lower in adjudication, they are usually irrecoverable regardless of the outcome.
- Complexity: Adjudication therefore may not be suitable for some claims if they are very complex.
- No obligation to disclose documents: unlike in court proceedings there is no requirement or duty for the parties to disclose all relevant documents. While inferences may be drawn by an adjudicator in respect of documents that are refused to be disclosed, a party cannot be compelled to do so.