Large construction projects are rarely completed without the need to resolve one or more disputes, especially if the development has a cross-jurisdictional element. Fortunately, most of these are minor and sorted out swiftly by a quick phone call or negotiation. But there are cases where a construction contract disputes result in deadlocks, delaying the project at a cost of thousands of pounds a day.
Adjudication is an alternative disputes resolution method designed to provide a quick remedy for construction disputes. The right to adjudicate can be provided for expressly in the construction contract. In addition, parties to construction contracts have a statutory right to adjudicate disputes under the Housing Grants, Construction and Regeneration Act (HGCRA) 1996.
The HGCRA 1996 was amended by the Local Democracy, Economic Development and Construction Act (LDEDCA) 2009. Amendments under the LDEDCA 2009 included opening up the right to adjudicate to verbal contracts and granting Adjudicators the power to amend clerical and typographical errors in a decision.
The LDEDCA 2009 only applies to construction contracts entered into after 1st October 2011.
Is there a right to adjudicate?
The HGCRA 1996, s 108(1) sets out a right to refer a dispute to adjudication:
“A party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with this section.”
A dispute must have ‘crystallised’ for the right to adjudicate to be triggered. The test on whether a dispute has arisen was laid out by Justice Jackson in AMEC Civil Engineering Ltd v Secretary of State for Transport  EWHC 2339 (TCC) which established:
- the term dispute will be given its normal meaning
- simply notifying the other party of a claim does not automatically mean a dispute has arisen
- one party being silent on a particular issue does not mean there is a dispute – it depends on the length and reason for the silence
- if the claim presented is so vague that the responding party cannot sensibly reply, neither silence nor a direct non-admission is likely to give rise to a dispute
In addition, the contract must meet the definition of a ‘construction contract’ for the right to adjudicate to be triggered. Section 104 of the HGCRA 1996 defines a construction contract as an agreement for the purpose of carrying out, arranging for the carrying out or providing labour for the carrying out of construction operations, whether under a sub-contract or otherwise.
The advantages and risks of adjudication
The process of adjudication has several advantages and risks for the parties. These include:
- Speed vs accuracy – an Adjudicator’s decision can be obtained within 28-42 days compared with formal litigation which can take anywhere between 12-24 months to complete. However, the short timescales also increase the risk of mistakes being made because the parties might not have enough time to present their arguments and evidence fully. Adjudicators, who are not necessarily legally trained, may also make errors of fact or law that would have been avoided if litigation had been pursued.
- No recovery of costs vs wasted costs – the fact parties are generally barred from recovering the costs of litigation lowers the risk of seeking a resolution. However, a party’s irrecoverable costs in a small claim could be a significant portion of the overall claim.
- Temporarily binding decision – the Adjudicator’s decision is only temporarily binding, meaning the winning party has no assurance that the dispute has been resolved. However, in practice, most parties to a construction contract dispute accept the Adjudicator’s decision to avoid the costs and time involved in going to court.
The need for speed
The key advantage of adjudication is speed. In fact, speed is given predominance over accuracy based on the principle that cash flow is paramount in a construction project.
In Hart Investments v Fidler  EWHC 2857 (TCC),  All ER (D) 232 (Nov), His Honour Justice Coulson QC (as he then was) explained, at :
“The whole point of adjudication is that speed is given precedence over accuracy. What matters is a quick decision, not necessarily a correct one. There is a summary timetable with which both the parties and the adjudicator must comply. If the swift timetable is kept to, the vast majority of adjudicators’ decisions are then enforced by this court in accordance with the 1996 Act.”
The following table sets out the process and timetable for adjudication proceedings:
|Day 1||Notice of adjudication served.|
|Day 1-7||The Adjudicator is appointed.|
|Day 7||The referring party must send a Referral Notice to the appointed adjudicator and everyone else involved in the dispute within seven days of the notice of adjudication being issued.|
|Day 35||The Adjudicator’s decision must be given|
|Day 45||The decision timeframe can be extended for 14 days with the consent of the referring party|
|Day 49 onwards||If both parties agree, an indefinite extension can be granted on the timeframe for giving a decision.|
Adjudication provides many other advantages over litigation, including the fact that proceedings are private, and the referring party enjoys the tactical element of ‘surprise’. But the main positive aspect of adjudication is the speed in which construction contract disputes can be resolved, meaning high-value projects can continue without the crippling delays which can result from formal litigation.
Saracens Solicitors is a multi-service law firm based in London’s West End. We have dedicated and highly experienced civil litigation solicitors who can advise you on construction contracts and adjudication. For more information, please call our office on 020 3588 3500.
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