Our industry expert gives his warning about adjudication and reveals what you need to know before getting involved in the process
In my last article I mentioned my increasing concerns about the adjudication process, and I have been asked to elaborate on these. In my view, it was a great idea to introduce adjudication into construction contracts more than 20 years ago. You were not being paid, there was a dispute, so you kicked off an adjudication
and 28 days or so later you had a decision which meant that, hopefully, you were paid what you were due, or most of it anyway.
However, things have moved on and the adjudication process has altered radically, and not for the better. Let me tell you why.
I think the fundamental problem now is that even if a referring party is successful in the adjudication, there is absolutely no guarantee that they will be paid what they are due (or what the adjudicator decided) and they will need to revert to the courts to enforce the adjudicator’s decision. That costs money, such as legal fees, and will take time, maybe three or four months. So, the question is: “What is the point of going to adjudication?”
More and more adjudicators see jurisdiction points being raised by respondents from the outset of the process and these are sometimes put in place simply to give the respondent some basis upon which to challenge the adjudicator’s decision at a later date in an enforcement action.
In my view, many of these challenges are manufactured and half-hearted, a ‘punt’, but nonetheless these have
to be considered by the adjudicator who issues a non-binding conclusion after considering them.
The challenges are wide, varied and imaginative – there is no crystallised dispute; the wrong Adjudicator Nominating Body (ANB) made the appointment; the Notice of Adjudication was not issued to the other party before an application was made to the ANB etc.
Now some of these can sound flimsy and you may ask: “So what? Let’s just get on with it.” When I am advising clients, my advice is to dispose of the jurisdiction point and just re-commence the adjudication but, in my view, it is incredible how many times the referring party will respond to the jurisdiction point with the request that the adjudicator does not resign.
If there are no jurisdictional challenges, there is little ground for resisting enforcement.
The other issue I have seen emerging in the last three or four years is that even after the adjudicator’s decision is issued in favour of the referring party, the respondent does not pay the decided sum and uses the adjudicator’s decision as some sort of negotiating vehicle to end up paying the other side less than the decided sum. I am not being critical, but this is just how it is.
So, jurisdiction is a big issue in adjudication, and I support Rudi Klein’s position that the sooner adjudicators are able to decide on their jurisdiction, the better.
There are provisions in the TeCSA Rules for this and it should be universally adopted as
soon as possible.
I want to touch on preparing your case for adjudication. This does not happen overnight and there are too many contractors who rush into adjudication without having fully developed their arguments and submissions – that can be fatal.
I had a client on the phone this week who had just received a Pay Less Notice which put a big hole in the payment he was expecting. He was screaming down the phone: “I want to start an adjudication tomorrow.” After calming him down, we agreed on a reasonable period to get the show on the road.
I can understand the frustrations of people running construction businesses in the UK, where they are owed significant sums of money that they can’t get in the bank to keep the business going, and they want to get the matter in front of an adjudicator ASAP. But they must be fully prepared before starting the process. So, given my lack of enthusiasm for adjudication, what are the options? As I have hammered out in previous articles, do all you can to mitigate a dispute. Get the dates of your applications for payment agreed in advance, and stick to them; provide fully detailed and backed-up applications for payment to avoid money being stripped off; hound the other side for payment, if not made by the final date for payment; keep on top of cash flow. Suspension remains your most useful tool if you are not paid by the final date.
Regarding the increasing costs of adjudication, another issue that Rudi Klein has been very concerned about,
I am attracted to the recent proposals from the RICS and TeCSA to have a low-cost scheme for adjudications relating to payment issues. I think this is a very positive move for the industry.
However, that is only one aspect, and the other aspect is the cost of legal advisers representing parties.
It is beyond my comprehension why parties engage lawyers to become involved in ‘Final Account’ disputes where the issues are purely measurement and valuation.
There is no reason why a senior commercial manger and/or a commercial director of a construction organisation cannot run the process. Contractors should consider preparing the submissions then passing them to the advisers (not always lawyers) to ensure compliance with the procedure.
Finally, another anecdote – speaking to another client last week, he was due about £120,000 in respect of an interim application which was not paid by the final date for payment.
He did a deal and accepted £105,000 on the basis of cash in the bank to pay the wages. If he had gone to adjudication, it would have cost him at least £20,000 of non-recoverable costs and he would have been hung out to dry for four months. That, sadly, is the state of the UK industry just now.
I close by saying the best defence is don’t get into a mess in the first place. I’ll discuss how you can do this in the next issue of CABLEtalk.