Guide to Adjudication
What is adjudication?
Adjudication is a method of resolving disputes, often favoured in the construction industry as it can lead to a swift and relatively cost effective resolution. The right to adjudicate is implied into every construction contract by the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”).
Adjudication has been described as a “pay now, argue later” mechanism, designed to protect cash-flow in the construction industry. An adjudicator’s decision is therefore binding pending ultimate determination of the dispute by a court or arbitrator, and can be enforced in the court (save in limited circumstances).
Your right to adjudicate
Parties to a ‘construction contract’ have a statutory right to refer a dispute to adjudication under the Construction Act.
The definition of ‘construction contract’ in the Construction Act is broad and includes contracts for the design and/or construction of works, as well as contracts for surveying work, interior/exterior decoration and landscaping advice.
However, certain types of contract are specifically excluded from the definition of ‘construction contract’, including:
- contracts with residential occupiers;
- contracts primarily concerned with oil, gas, minerals, chemicals, pharmaceuticals, steel, food and drink, nuclear processing, power generation and water or effluent treatment supply only contracts;
- development agreements, finance agreements, private finance initiative (PFI) contracts and certain contracts relating to direct procurement for customers (DPC) projects in the water and sewerage industry.
How long does adjudication take?
The Construction Act sets out a tight timetable for adjudication. The adjudicator's decision must be made within 28 days of service of the Referral. However, this 28 day timescale may be extended by 14 days if the the Referring Party agrees. Any extensions thereafter must be agreed by both parties.
What is the adjudication process?
It is important to check your contract to establish the specific details of the contractual procedure that will apply to your dispute. The parties are free to agree the adjudication procedure, provided it complies with certain minimum procedural requirements set out in the Construction Act. If it does not, or if the contract does not contain any adjudication provisions, all of the adjudication provisions in Part I of the Scheme for Construction Contracts 1998 are implied instead.
A typical adjudication would follow the process below:
|Dispute arises||The right to adjudicate arises where a ‘dispute’ has crystallised under a construction contract.|
|Notice of adjudication||The referring party can initiate an adjudication by submitting a written Notice of Adjudication to the other party to the dispute, setting out details of the dispute and the remedy sought.|
|Appointment of adjudicator||An adjudicator should be appointed within seven days of the Notice of Adjudication. Your contract may name an adjudicator, panel of adjudicators or nominating body to choose an adjudicator.|
|Referral||The referring party sends a Referral to both the adjudicator and the responding party, attaching all documents relied on in support of their claim. This should also be sent within seven days of the Notice of Adjudication.|
|Directions||Following receipt of the Referral, the adjudicator will usually set directions for the remaining submissions (often after inviting the parties to seek to agree such directions). This may include a site visit or meeting between the parties and the adjudicator.|
|Response||The responding party will typically submit a Response to the Referral. The time period for this Response can vary depending on what the parties agree and any extension permitted to the deadline for the adjudicator to provide their decision.|
|Reply||The referring party may wish to submit a Reply to the Response, if permitted by the adjudicator.|
|Further submissions||The parties often wish to make further submissions, although the adjudicator may impose a limit or deadline on submissions given the timescales involved.|
|Decision||The adjudicator must provide their decision within 28 days of the Referral. The adjudicator can extend this period by up to 14 days with the referring party’s consent and for any further period as both parties may agree.|
|Enforcement of decision||If the other party does not comply with an adjudicator’s decision in your favour, you can enforce that decision in court. Usually, you would make an application for summary judgment in the Technology and Construction Court.|
Parties cannot agree provisions regarding the payment of their costs of an adjudication before the adjudication is commenced. If they seek to, for example if the construction contract states that one party will always pay the other party’s costs, such a provision will be unenforceable.
The adjudicator can be given the power to decide who will be liable for the legal costs of the adjudication, as long as that is contained in an agreement made after the notice of adjudication is served. Unsurprisingly, this rarely occurs in practice and each party will usually be responsible for their own costs. The adjudicator should have the power to decide which party pays the adjudicator’s fees.
Adjudication appeal - is it possible?
An adjudicator’s decision is, in the main, still enforceable even if the adjudicator gets the facts, law or procedure wrong. The ‘pay now, argue later’ approach means that if the parties disagree with the decision, they can start court or arbitration proceedings to have the decision overturned. However, the costs and risks involved in court and arbitration proceedings mean that very few decisions are reheard in new court or arbitration proceedings. The approach more commonly taken by the losing party is to refuse to pay the awarded sum and raise a challenge when the winning party attempts to enforce the adjudicator’s award. However, the courts take a robust approach to enforcement and such challenges rarely succeed.
The enforceability of the decision may be challenged if:
- The adjudicator has conducted the adjudication in such a way that breaches the rules of natural justice, for example, had separate communications with the parties or formed a preliminary view without informing the parties.
- The adjudicator lacked jurisdiction, provided that the right to challenge the adjudicator’s jurisdiction has been properly reserved.
- The adjudicator’s decision was arguably procured by fraud or where the evidence on which the adjudicator relied is shown to be both material and arguably fraudulent but the allegations of fraud could not have been raised in the adjudication itself.
Adjudication v Arbitration
Adjudication should not be confused with arbitration.
Arbitration is another form of alternative dispute resolution, in which a dispute is submitted to an arbitrator or panel of arbitrators to make a binding decision. How do they compare?
- The decision is final and binding.
- It is typically more expensive as it runs for a longer period of time and has a more detailed procedural process.
- Some or all of a party’s costs may be recoverable from the other side, though of course there is the risk that the costs are awarded against the claiming party.
Similarities between adjudication and arbitration include that:
- They are both held in private but, if there is a later challenge to the arbitrator or adjudicator’s jurisdiction, the courts (a public process) can hear the challenge.
- Neither procedure is well suited to multi-party disputes, as other parties can only be joined if the parties agree or there is a chain on contracts with joinder provisions.
Should I adjudicate?
Despite the many advantages of adjudication, it may not necessarily be the most appropriate means of resolving your construction dispute.
- Mediation can often help apparently polarised parties to find some middle ground.
- Even if submitting the dispute for independent determination is unavoidable, there are circumstances in which it may be advisable to head straight for litigation or arbitration, rather than adjudication.
- Alternatively, expert determination allows for a binding decision to be obtained according to a procedure agreed by the parties and can be the best option in some situations.
|Advantages of adjudication||Limitations of adjudication|
|Quick resolution; potentially a 28 day process, faster than litigation or arbitration.||
With the tight timetable, there is a restricted opportunity to argue the disputed points. The adjudicator is also under pressure to deliver a quick decision.
Consequently, the losing party may feel that it has suffered ‘rough justice’.
Usually cost effective.
Limits a party’s ability to tie the would-be claimant up in lengthy and expensive litigation.
It may be unsuitable for complex disputes involving multiple parties, allegations of professional negligence or large and complicated final account disputes.
Unless permitted by a chain of contracts or agreed by the parties, you cannot join multiple parties into the same adjudication.
Although it may be possible to break down a complex dispute into smaller issues.
|It is a private proceeding (unless subsequently enforced in court, which is public).||
Parties will likely bear their own legal costs, which may be significant for complex disputes.
With the limited exception discussed earlier in this note, the adjudicator has no power to award costs to the winning party, other than payment of the adjudicator’s own fees.
The adjudicator cannot award interest unless provided for by the contract or adjudication procedure.
|Courts robustly enforce adjudicators’ decisions unless there is a clear error of jurisdiction or serious breach of natural justice.||
Adjudication is only interim and provisional in nature (although the majority of adjudicator’s decisions are accepted by the parties).
The chance of subsequent court or arbitral proceedings may depend on the amount of money at stake.
You can choose an adjudicator with particular expertise in the subject matter of the dispute.
|It is possible to get rogue adjudication decisions.|