Adjudication in the construction industry
Freeth Cartwright partner, adjudicator and ex-civil engineer Raymond Joyce looks at the role of adjudication in the highly litigious construction industry.
Lord Denning, the most celebrated English judged of the 20th century, once remarked: “There must be a ‘cash flow’ in the building trade. It is the very lifeblood of the enterprise.”
But despite such lofty legal support, it is so often the construction industry which falls victim to cash flow strangulation.
Imagine the scene: you might be having a building constructed for you or you are employing subcontractors. All is well, you are keeping within budget and because the work is not exactly to programme or specification you are withholding some cash from your contractor.
Wittingly or otherwise, you have put a tourniquet on the contractor’s cash flow.
Parliament finally came to the view that interrupted cash flow in the construction industry was promoting an inefficient and claims-driven industry. Therefore adjudication was put on the statute book in 1994 as a dispute resolution process designed specifically for the construction industry.
Your contractor is unprepared to extend you any further credit and you receive a notice of intention to adjudicate. The notice will set out the facts of the dispute, usually the unpaid debt and there is a window of a few days in which an adjudicator has to be appointed. The appointment is either on an agreed basis or made by one of the organisations recognised by the Statutory Scheme for Construction Contracts (”Statutory Scheme”).
You might try to argue that the adjudicator has no jurisdiction but this will rarely be successful. The appointed adjudicator has a statutory duty to make a decision within four weeks of being appointed, or six weeks if the contractor agrees to a two week extension.
Four to six weeks to understand the contractor’s case, prepare a defence, comply with the directions of the adjudicator, take interview witness statements, prepare drawings, attend meetings and so on is work intensive. The adjudicator has the task of reading it all, usually in the last few days before the deadline for the decision.
If you don’t like the adjudicator’s decision that you should pay a certain sum of money to the contractor, there is no right of appeal. If you don’t pay, the contractor now applies to the court to have the decision of the adjudicator enforced by the court, which it will do in almost all cases.
If you pay, but feel so aggrieved you want to pursue the matter afresh in litigation or adjudication, is it worth embarking upon litigation or adjudication?
Most cases come to an end after the adjudicator’s decision. Rightly or wrongly, it is often commercially expedient for the losing party to live with a bad decision rather than invest the time and more money in seeking a ‘better quality’ decision.
Of course, not all contractors are successful at adjudication but preparing a case at leisure before commencing adjudication is a significant advantage.
It is better to minimise the risk of adjudication by complying with the requirements of the Housing Grants, Construction and Regeneration Act 1996 (as amended). If you assess the amount owed to the contractor is less than the sum applied for, ensure that you comply with the contract as to the payment provisions or the Statutory Scheme.
The speed of decision making and the willingness of the courts to enforce the adjudicator’s decisions, even if their decisions are inexplicable, have assured the popularity of the adjudication process. Funding a claim in adjudication is rarely prohibitive and for the cash strapped, the palm tree justice may just provide the necessary shade in an otherwise hot spot.
Raymond Joyce is based at Freeth Cartwright’s Birmingham office and has been appointed as an adjudicator in disputes ranging in value from £10,000 to £20,000,000.
Contact him on: 0845 634 2578
Email: raymond.joyce@frethcartwright.co.uk Ends - 12 February 2010