Effectiveness of Adjudication Dispute Resolution Construction

In the construction industry adjudication is the most widely used form of dispute resolution. ICE qualifies and appoints adjudicators to act under all forms of contract including NEC3 and ICE Conditions of Contract. Any party to a construction contract has the right to refer a dispute to adjudication at any time. In section 108 of the Housing Grants, Construction and Regeneration Act 1996 permits parties to refer disputes arising under the contract to use adjudication. However, if there is no adjudication process in the contract a statutory default scheme can be used. This statutory default scheme will be describe later.

Adjudication is an effective way of resolving disputes in construction contracts. It is a decision-making process involving a neutral third party, called an adjudicator, with the authority to make a binding decision on the parties. To reduce the case loads on the courts and arbitration, since May 1, 1998, adjudication as an ADR to resolve disputes arising under the construction, security installation, telecommunications and engineering contracts has been introduced by the Housing Grants, Construction and Regeneration Act 1996 as stated above. Since then adjudication has been receiving full support from the construction industry. Due to its compulsory provision, adjudication has become a main form of dispute resolution settling differences between parties to a construction contract. To submit disputes arising from the contract to adjudication, the construction contract between the parties must be in writing. Different types of dispute which may be submitted to adjudication consist of money claims, delay and disruption, extension of time, declarations, specific performance and defect claims.

Section 108 of the Act provides parties to construction contracts with a right to refer disputes arising under the contract to adjudication. It sets out certain minimum procedural requirements which allow either party to a dispute to refer the matter to an independent party who is then required to make a decision within 28 days of the matter being referred. If a construction contract does not comply with these requirements, a statutory default scheme, called the Scheme for Construction Contracts will apply. This Guide specifically relates to adjudications conducted under the Scheme, although the general principles will apply to all adjudications. Sometimes it has been necessary to specify whether a section relates only to the Scheme or to all adjudications. Adjudication does not necessarily achieve final settlement of a dispute because either of the parties has the right to have the same dispute heard afresh in court. However, recent experience shows that the majority of adjudication decisions are accepted by the parties as the final result. The legislation provides that adjudication can be used at any time. For example, provided the parties have a contractual relationship it can be used to decide contractual disputes with designers before construction begins. It can also be used to resolve contractual disputes with and between designers, contractors and subcontractors during construction. This process can also be used after completion of the project. Once a dispute has arisen between the parties either party may seek adjudication. The adjudicator is selected within a week and must decide the dispute within a further four weeks. Once the adjudicator has made his or her decision, the other party must comply with it. If the other party does not comply, a court hearing to compel compliance can usually be obtained in a matter of days. Adjudication is very quick process in comparison with other methods of dispute resolution such as arbitration or litigation and it can also be used during the currency of a contract. Adjudication can be a simple procedure, so in many cases there is no need to involve lawyers or other advisers. It is also usually more cost effective than arbitration or litigation.

Adjudication is very effective due to it being designed to be a simple process to enable disputes to be resolved inexpensively and quickly. In many cases it will not be necessary for you to incur the cost of obtaining professional assistance from lawyers, claims consultants, or other specialists. You may be able to seek assistance from your trade association or professional body. However, proper preparation and presentation of your written case to the adjudicator may be a critical factor in the success or failure of your arguments. The adjudicator only has a short time in which to consider the arguments put forward by both parties before reaching his or her decision. In reality, this is often only two or three weeks. Where the facts of a dispute are straightforward and the referring party wishes the adjudicator to make a decision about how much should be paid, and to whom, then preparation of the case can probably be done without any professional assistance. Where the case involves complicated technical or legal issues, then you may wish to seek professional help and, if this is the case, you are recommended to seek it at the earliest opportunity.

Who pays the costs depends upon the terms of the Scheme or adjudication procedure, whichever applies. It is very likely that the adjudicator will have no power to award costs, and you will therefore have to bear your own costs, even if you win. Although adjudication is relatively inexpensive in comparison with arbitration or litigation, the process is not free and there are unavoidably some costs that have to be paid. There are two elements to these costs. This includes the fees of the adjudicator (together with those for any advice and assistance he obtains) and the costs that you and the other party spend on your own legal, expert or commercial advice. Who pays the adjudicator’s costs is one of those matters that depend upon the terms of the adjudication procedure. Under the Scheme and many other procedures, it is for the adjudicator to decide who should pay his costs, as part of the decision. Often, the adjudicator will decide that the party losing overall must pay his costs. However, this is not always the case and he may take into account matters such as how each party has behaved, and whether each party has won on some issues. On the other hand, whatever the outcome of the decision, the adjudicator may simply apportion the fees equally between you and the other party. However, this is not the end of the matter since both parties are jointly and severally responsible to the adjudicator for his fees. This means that if the other party does not pay, you will have to. If one of you defaults on payment, or becomes insolvent, the adjudicator can legally demand those fees from the other, leaving that other party to recover from the defaulter. It is also worth remembering that the adjudicator is under a duty to avoid incurring unnecessary expense.

A big advantage of adjudication is that you have to refer your dispute to the adjudicator within seven days of your notice of adjudication. The adjudicator then has 28 days from the date of your referral notice to make his decision. The adjudicator can extend this by up to 14 days with your consent. If the parties both agree, they can extend the period for as long as they wish, provided the agreement is made after the date of the referral notice. This shows how effective adjudication is due to it being a quick process unlike arbitration or litigation.