Adjudication is historically more prevalent in the construction industry than in other commercial sectors. This is largely because if you are a party to a construction contract, you have a statutory right to refer your dispute to adjudication. In this article, our commercial property dispute solicitors examine the key issues around construction adjudication to provide you with a broad overview of the key issues and whether this is a suitable method of dispute resolution.
- What is adjudication?
- Is an adjudicator’s decision binding?
- When is adjudication appropriate?
- When is adjudication not appropriate?
- How do you know if you have a construction contract?
- Is it always obvious when a construction contract is in existence?
- Can you refer more than one dispute to the adjudicator?
- Key steps in the adjudication process timeline
- Enforcing an adjudicator’s decision
- Which rules govern the adjudication process?
- Challenging the enforcement of an adjudicator’s decision
- Advantages and disadvantages of adjudication
- Can an adjudicator’s decision be deferred?
- Will a stay of execution be granted if fraud is suspected?
- Can adjudication be withheld?
- Adjudication vs arbitration
- What does adjudication cost?
- How long does adjudication take?
What is adjudication?
Adjudication in construction contracts refers to a specific method of resolving disputes: one that recognises the distinct nature of the construction industry and the types of disagreement that can arise within it.
Adjudication has become a common way to resolve such disputes. It’s a process that those entering contracts in the building or construction industry can’t opt out of – in other words, it is a mandatory form of dispute resolution in this sector. If there is no mention of adjudication in your contract, then it will be classed as an implied term. Adjudication is speedy: an adjudicator is required to decide matters referred to them within 28 days.
The automatic right to refer disputes to an adjudicator was introduced in The Construction Act 1996. Before that, there was a feeling that when a dispute over payment arose for example, many of the smaller businesses, suppliers and contractors involved in the building trade were at the mercy of the larger organisations and developers with whom they had contracted. Bigger businesses were in a better position to afford to go through lengthy and expensive legal proceedings than smaller contractors, who could often end up failing to recover monies due to them.
We’ve discussed different forms of alternative dispute resolution more generally in one of our other articles.
Is an adjudicator’s decision binding?
One thing you should be aware of is that adjudication is a dispute resolution method that settles matters on an interim or temporary basis. Decisions are binding – but only until the dispute is determined by litigation or by agreement further down the line.
When is adjudication appropriate?
The Construction Act allows a party to a construction contract to refer a dispute to an adjudicator ‘at any time’. Common construction disputes might be about:
- Non-payment of monies due for particular stages of a development
- Delays to construction
- Requests for extensions of time
- Poorly executed and defective work
- Clarification of the scope of a project
More complex contractual issues and negligence claims may also be referred to an adjudicator, even though the process was originally designed to deal with relatively straightforward claims on an urgent basis.
Very often, the matter referred to adjudication is a standalone issue. A dispute might be holding up a particular building project or causing cashflow issues for one party to the contract. By accepting the adjudicator’s jurisdiction and decision, the parties can continue to carry on work. As referred to above, the ruling will usually only be a temporary solution which enables the development to continue until a more permanent solution can be found.
When is adjudication not appropriate?
Not every disagreement is suitable for adjudication. It’s important for you to remember that the adjudication process in construction disputes has been developed to provide fast, practical solutions. If a dispute is particularly complex, the parties may agree to court proceedings or arbitration.
It’s often worth seeking professional legal advice on the cost consequences of adjudication if you do decide to proceed. If your case is complex, it follows that adjudication costs will be higher. Additionally, as we discuss below, even if you are successful you have less opportunity to recover these costs than if you go to court.
How do you know if you have a construction contract?
The right to adjudication we are examining here only applies to ‘construction contracts’ that are in writing. The Construction Act describes a construction contract as an agreement to do any of the following:
- Carrying out construction operations
- Arranging for construction operations to be done by others; for example, by using a subcontractor
- Providing labour for construction operations
‘Construction operations’ is a broad term, which covers everything from building, maintenance, demolition or the repair of temporary or permanent buildings.
Is it always obvious when a construction contract is in existence?
In many cases, you will find that it’s obvious whether or not an agreement can be classed a construction contract. If you’re uncertain, it’s a good idea to seek specialist legal advice early on so that you know what the available remedies are – this is crucial in order to minimise the risk of running up a hefty bill of costs.
In Savoye and Savoye Ltd v Spicers Ltd  EWHC 33 (TCC), a total of £400,000 in legal fees was incurred establishing that, what on the face of it didn’t seem to be a construction contract at all, was, and could be subject to the adjudication process.
One final point it’s worth highlighting is that if it turns out that your agreement isn’t classed as a construction contract, you and the other contracting party can still elect to use the adjudication procedure.
Can you refer more than one dispute to the adjudicator?
The default position is that only one dispute can be referred to the adjudicator at any one time. However, before the adjudication process begins, it’s important to be clear on whether there’s one dispute or multiple disputes right at the outset. If there are multiple disputes, it’s vital to check whether the contract itself allows you to refer multiple disputes to the adjudicator or whether there’s a stipulation that each dispute must be adjudicated separately.
If it’s the case that there’s a dispute with various sub-issues, particular care must be taken when the Notice of Adjudication and subsequent Referral Notice are drafted in order to establish a clear link between the sub-issues so as to ensure you are not in fact referring multiple disputes to the adjudicator.
Key steps in the adjudication process timeline
The adjudication process is designed to be clear-cut and efficient. There are tight time limits to observe and conditions to satisfy before one party can start the process. You have the option to extend the process by agreement, but a summary of the adjudication process timeline is as follows:
|Before you begin||Check that there is a right to adjudication: does the dispute definitely arise out of a construction contract? Ensure the details of the claim have been brought to the other side’s attention and that the claim has been rejected or ignored: this is known as ‘crystallisation’ of the claim.|
|Beginning the process||The party bringing the claim (the referrer) serves a Notice of Adjudication. This is followed by a Referral Notice that contains full details of the claim.|
|Within 7 days||Agree upon an adjudicator with the other side and settle the terms & conditions of the adjudication. Any dispute over the right to refer the dispute to adjudication should be raised now.|
|Between 7 and 14 days||The responding party serves a Response (effectively a Defence).|
|Within 7 days||The referrer replies and there is an opportunity for the responder to make further representations.|
|By day 28||Adjudicator reaches a binding decision.|
Do you need to resolve a business dispute?
Enforcing an adjudicator’s decision
The adjudicator’s decision is binding. If one side does not comply, enforcement procedures are available through the court. The Technology and Construction Court (TCC) – an arm of the High Court – is the correct forum to commence any enforcement actions.
Cumbersome enforcement procedures would clearly undermine the whole rationale behind adjudication, which is to provide a speedy way to resolve construction disputes. This is why a bespoke procedure has been developed, with the aim of fast-tracking cases of this nature.
Which rules govern the adjudication process?
A party seeking to enforce an adjudicator’s decision should begin proceedings under the Civil Procedure Rules (‘CPR’). The specific procedure to adopt will depend on whether the party is seeking a monetary judgment or some kind of declaratory relief, where the court makes an official declaration about the case. The claim should be accompanied by an application for summary judgment.
Challenging the enforcement of an adjudicator’s decision
Challenging an adjudicator’s decision – and its enforcement – should only be done following specialist legal advice. A successful challenge is rare. That’s because – as we have previously mentioned – an adjudicator’s decision is binding only until the dispute is litigated or arbitrated fully. To ensure the adjudication scheme remains effective, courts will go to some length to ensure enforcement. Furthermore, case law in this area demonstrates that enforcement will be sanctioned even where the adjudicator has made a factual mistake or has applied the law incorrectly.
That said, it is possible for you to challenge a decision on the grounds that the adjudicator did not have jurisdiction or power to adjudicate; for example, if:
- There was no written construction contract
- The dispute had not crystallised
- The correct procedures weren’t followed in appointing the adjudicator
It’s also possible to argue that the adjudicator was biased in favour of one party or did not give sufficient reasons for their decision.
Advantages and disadvantages of adjudication
As you now know, adjudication is a very popular way of resolving disputes in the construction industry – but it won’t necessarily be a suitable method of dispute resolution in every single case. We’ve set out some of the advantages and disadvantages of adjudication in the table below:
|Provides basis of a quick resolution to the dispute.||The scheme is geared toward achieving a result quickly. Corners will on occasion be cut and crucial facts may be overlooked.|
|Minimises disruption to the overall construction project.||The successful party won’t necessarily recover their costs of the adjudication.|
|The focus on quick payment following adjudication reduces chances of contractor insolvency.||The 28-day timetable does not give the parties time to examine all the facts in cases of any complexity. Even if the right to adjudicate has arisen because a claim has crystallised, it may simply be too complicated to be dealt with through the adjudication process.|
|Lower costs than litigation and less exposure to irrecoverable legal fees.|
|Parties to a construction dispute will often have hugely differing financial resources. The lower cost regime and encouragement of a swift decision puts parties on a more equal footing.|
|Unlike court hearings, adjudication is a private matter between the parties.|
Can an adjudicator’s decision be deferred?
As we’ve pointed out, the whole adjudication process as applied to construction contracts is aimed at finding quick solutions to disputes that might otherwise become bogged down in lengthy litigation. Delays caused by litigation can have huge knock-on consequences for the rest of a building project and on other parties who are uninvolved in the dispute. Looking at it this way, it would make little sense if the enforcement of a decision by an adjudicator could be delayed for any length of time. In one of the most important cases in this area, Wimbledon Construction Co 2000 Ltd v Vago  EWHC 1086 (TCC), the court confirmed this to be the position. It reiterated that stays in execution of adjudication decisions are contrary to the principles of the Construction Act and should be allowed only in limited circumstances (for example, if the contractor against whom an order to pay money was made insolvent).
Will a stay of execution be granted if fraud is suspected?
In 2018, the principles set out in Wimbledon v Vago were extended to suggest that a stay of execution may be permitted where there are grounds of suspected fraud. That is to say, in a situation where the party seeking a delay in executing the adjudicator’s decision produces credible evidence that the successful party in the adjudication may attempt to dissipate any monies received from the unsuccessful party (so that they are unable to be repaid in the event that the adjudicator’s decision is overturned by later litigation or arbitration).
Can adjudication be withheld?
Parties to a construction contract are not permitted to opt out of adjudication. If there is no reference to the process in your contract, the provisions of the Scheme for Construction Contracts 1998 will be implied. A party that receives a Notice of Adjudication may of course challenge the adjudication process by arguing, for example, that:
- The contract in question is not a construction contract
- The dispute that forms the basis of the notice has not yet crystallised, therefore adjudication is premature
- The Adjudicator has not been properly appointed
- The dispute has already been adjudicated upon
Adjudication vs arbitration
Arbitration is another form of dispute resolution that’s often used in construction conflicts. Parties appoint an arbitrator, who ultimately makes an award that’s binding on the parties. Adjudication and arbitration have much in common (they are both private and flexible alternatives to litigation proceedings, for example). However, there are significant differences between the two, and each process has advantages and disadvantages. We’ve set out a handy summary of these differences below.
|Length of proceedings||Adjudication is fast – it’s a process that takes 28 days from start to finish (longer if agreed between the parties.||Arbitration has a much more judicial “feel” about it and can take months or years to run its course.|
|Consideration of issues||The adjudication process may not fully examine all of the issues to hand because of the compressed timescale in which it operates.||Arbitration allows for a fuller examination of the issues, so ff you are involved in a particularly complex dispute involving several parties this may be worth considering.|
|Legal fees||Adjudication costs can be much lower than the costs of arbitration because it’s quicker and usually involves a standalone issue of dispute. With the adjudication process each side usually bears its own costs.||Arbitration is a more formal process with each side presenting a case, disclosing different categories of evidence, and going through several procedural steps so may be more costly. Arbitration has the possibility of recovering legal costs from the other side.|
|Outcomes||Adjudication usually results in a monetary award, or a remedy dictating timescales within which a contractual element must be performed.||An arbitrator has a wider range of legal remedies at his or her disposal than an adjudicator.|
What does adjudication cost?
Adjudication is a short process, so exposure to costs is limited. However, because each party usually pays its own legal fees, the cost of adjudication can be a significant consideration. It’s difficult to be precise about actual costs as each case will depend on its particular facts, but expenditure you should bear in mind includes:
- Adjudicator’s fee: Adjudicators charge an hourly rate, usually in the region of £200-£300 plus VAT. Critically, a responding party may well have little say over the appointment of an adjudicator or the level of fees because the Referral Notice is issued before the responding party knows what fees the adjudicator is seeking. In addition, each party will be jointly liable for the fees of the adjudicator, so if one side doesn’t pay, the adjudicator can claim all of his or her fees from the other.
- Fee to the professional body that nominates the adjudicator.
- Fees to your professional advisor: this constitutes payment to a specialist construction lawyer to advise you throughout the process. It’s unlikely that you will be able to recover these fees, even if you are successful in the adjudication.
How long does adjudication take?
As discussed, the adjudication process follows a timetable of 28 days. This can be extended to 42 days or longer by agreement between the parties.
It’s clear that the adjudication process plays a vital role in dispute resolution in the construction sector and provides a streamlined approach to solving problems that might otherwise be subject to lengthy and costly court litigation in its absence. However, as highlighted in this article, it’s not always the most suitable mechanism for every disagreement and if a dispute is complicated, it may not be appropriate to refer the matter to an adjudicator. Seeking advice from a lawyer specialising in construction and engineering disputes is essential before embarking on any course of action in this field to be certain that you are adhering to your contractual obligations and also, that the interests of your business are managed effectively in the face of any challenges.