Construction Adjudication

Adjudication has been called the saviour of the construction industry as far as construction disputes or construction claims is concerned. But what exactly is adjudication and why does it have to be used.

Following the introduction of the Housing Grants, Construction and Regeneration Act 1996, otherwise known as the ‘Construction Act’, every construction contract must contain a provision allowing either party to refer any dispute under the contract to adjudication. A construction contract is defined within the Construction Act and we will return to that definition in another article.

The Construction Act requires that every construction contract must provide that (i) a party can give notice at any time of an intention to refer a dispute or difference to adjudication (and the courts have been very clear – at any time), (ii) a period of seven days for the appointment of an Adjudicator and service of the claim, (iii) a timetable of 28 days from the date of service of the claim for the adjudicator to reach a decision, (iv) the adjudicator is to act impartially and (v) the adjudicator may take the initiative in finding out the facts and the law.

If a construction contract does not contain these minimum provisions then the law now implies those requirements into the contract by imposing on the parties the Scheme for Construction Contracts (England and Wales) Regulations (there are equivalent regulations for Northern Ireland and Scotland) which set out how the adjudication is to be governed. Thus even if a construction contract does not contain any adjudication provisions either party can still adjudicate any dispute that arises.

The construction contract must also provide that the adjudicator’s decision is binding upon the parties until either the dispute is decided by arbitration or legal proceedings or the parties agree that it is final.

The courts have shown themselves ready to enforce an adjudicator’s decision, provided that the adjudicator had the jurisdiction to decide the dispute, even when the decision is clearly wrong in either or both fact and law. That is because parliament decided that decisions are to be binding and the courts have therefore upheld that principle – although inevitably there are limited occasions when a decision has not been enforced such as where an adjudicator has been guilty of partiality or has breached natural justice.

The basic principle of adjudication is that it is intended to be a swift way of resolving construction disputes whether they be a valuation dispute, a dispute about defects or an extension of time dispute, producing decisions that have a temporary binding effect, and that the process should be inexpensive. The Construction Act is silent on the costs incurred by parties but usually both parties pay their own costs. However adjudicators can usually decide on how their fees and expenses are to be apportioned between the parties and as usual it is normal for a losing part to pay.

Inevitably, given the contentious nature of claims in construction, a large body of case law has grown confusing the straightforward principles set out by parliament and so care and advice must be taken if adjudication is contemplated. That is particularly so in deciding whether a contract is in ‘writing’ for the purposes of the Construction Act. However there can be no doubt that the process is quick, relatively inexpensive and has eased up the cashflow problems that used to blight the construction industry. It has given contractors and sub contractors a useful tool in obtaining their rights.