Construction Adjudication Intricacies

Adjudication is a mandatory dispute resolution process specifically designed for the construction industry, introduced under the Housing Grants Construction and Regeneration Act 1996 (Construction Act 1996). It provides a fast, 28-day mechanism (extendable by agreement) to address and resolve disputes, ensuring continued cash flow during a project. This approach is often referred to as “pay first, argue later.”

Key Features of Adjudication

• Applicable to Construction Contracts: Parties in a “construction contract” cannot opt out of adjudication.
• Interim Binding Decisions: The adjudicator’s decisions are binding until the dispute is ultimately resolved through legal proceedings, arbitration, or mutual agreement.
• Focus on Cash Flow: Adjudication helps maintain cash flow, critical in construction projects, by resolving financial disputes quickly.

Types of Disputes Resolved by Adjudication

Adjudication can address a wide variety of claims within construction, including but not limited to:

Common Financial and Project-Based Claims

• Interim Payments: Payments made to subcontractors throughout the project to ensure financial flow.
• Delay and Disruption: Compensation claims due to delays or disruptions affecting project productivity.
• Extensions of Time: Requests to extend the project timeline due to unforeseen delays.
• Defects in Works: Issues relating to construction defects, such as water intrusion or structural flaws.
• Final Account: The final settlement detailing the total amount due to the contractor.

Complex Claims

• Breach of Contract: Claims for failure to meet contractual obligations, such as completing work on time or according to standards.
• Termination of Contract: Cases where contract termination becomes necessary due to significant non-performance.
• Professional Negligence: Claims against construction professionals, such as architects or engineers, who fail to meet professional standards.

Legal Framework for Adjudication

Rights Under the Construction Act 1996

The Construction Act grants parties the right to refer a dispute to adjudication at any time during a project. Part 1 of the Scheme for Construction Contracts 1998 provides additional terms where a contract does not contain all adjudication provisions.

Interim Binding Nature of Decisions

Adjudicator decisions are binding on an interim basis, usually enforced by the Technology and Construction Court (TCC). Challenges to these decisions by the losing party are rare and typically unsuccessful.

Preparing for Adjudication

Steps Before Starting Adjudication

To initiate adjudication, it’s essential to ensure the dispute is clear and specific. Key preparatory steps include:

1. Defining the Dispute: The dispute must be well-defined in the notice of adjudication.
2. Including a Single Dispute: Adjudication generally covers one dispute per notice unless the contract allows otherwise.
3. Meeting Time Limits: Adhere to any time restrictions outlined in the contract.

Receiving a Notice of Adjudication

Upon receiving a notice, parties should verify:

• Existence of a Construction Contract: Confirm if a valid construction contract applies.
• Crystallization of Dispute: Ensure the dispute has fully developed.
• Consistency of Referred Dispute: Verify that the dispute in the notice aligns with the actual issue.
• Adjudicator’s Appointment and Jurisdiction: Confirm the validity of the adjudicator’s appointment and assess any potential grounds to challenge jurisdiction.

Reviewing the Adjudicator’s Decision

Once the adjudicator’s decision is issued, both parties should evaluate:

• Timeliness and Accuracy: Check if the decision was issued on time and if there are clerical errors.
• Adherence to Natural Justice: Ensure the adjudicator acted fairly and without bias, avoiding conflicts of interest.
• Jurisdictional Compliance: Confirm that the adjudicator addressed the correct question, even if the outcome was unfavorable.

Benefits of Adjudication for Subcontractors

Strategic Tool for Subcontractors

For subcontractors, adjudication is a powerful tool when negotiating with employers. However, effective use requires:

• Process Knowledge: A thorough understanding of adjudication steps and requirements.
• Advocacy Skills: The ability to present a clear, persuasive argument that effectively conveys their position.

Defining a Construction Contract Under the Act

Under the Construction Act (Section 104), a construction contract involves agreements related to construction operations, including:

1. Construction, Alteration, and Repair: Broadly defined to cover structures, industrial facilities, and infrastructure such as roads, power lines, and harbors.
2. Internal Works: Includes installations like heating, electrical systems, fire protection, and communications.
3. Excluded Contracts: Some contracts are excluded, such as those involving oil extraction, nuclear processes, or residential projects lasting under 45 days.

Key Elements in Common Claims

• Interim Payments: Scheduled payments throughout a project, ensuring subcontractors don’t wait until completion for compensation.
• Delay vs. Disruption Claims: Delay claims extend the timeline; disruption claims seek compensation for productivity losses.
• Extension of Time: Allows contractors to avoid penalties if delays are justifiable.
• Defects: Defect claims address structural or functional issues, allowing recovery for damages or cost of repairs.
• Final Account: Final settlement on agreed project costs.

By understanding adjudication’s mechanisms, rights, and limitations, parties in the construction industry can effectively navigate disputes, ensuring swift resolutions and project continuity.