Andrew D. Reid is an Adjudicator, Chartered Quantity Surveyor, Chartered Construction Manager, and NEC4 ECC Accredited Project Manager with experience in Private Practice, Development and Main Contracting industries. He provides claims, contract, and dispute resolution (adjudication) services (as adjudicator or party representative) provided in Scotland, England and Wales. He is also a RICS Assessor and Counsellor. He also has experience as a Tribunal Secretary in a large complex international arbitration, with his involvement spanning four years. Lawyer Monthly recently caught up with Andrew to discuss construction disputes and how to resolve them.
What is construction alternative dispute resolution?
Construction alternative dispute resolution (ADR) is a variety of methods to conclude construction disputes in a less adversarial formal process (such as litigation), either on a temporary or finally binding basis. ADR is not new, with mediation appearing in ancient times – developed in Ancient Greece, then in the Roman civilization. ADR can be adjudicative or non-adjudicative. Adjudicative ADR is where a neutral third party is appointed to determine a dispute and provides more flexibility and privacy than litigation. The parties retain more control of the dispute (than with litigation), and a significant factor is who is appointed to determine the dispute (as with litigation, the judge is appointed). Some examples of adjudicative ADR methods are arbitration, adjudication, and expert determination. In all three of these methods, the parties have a degree of control over the appointment of the third-party neutral, selecting with a skill set and experience (and availability) best suited to hear and determine the dispute.
Non-adjudicative ADR is used where the parties wish to regain control of the process (as compared to litigation) and the outcome. Examples of this type of ADR are: negotiation, mediation, early neutral/expert evaluation, and conciliation. This ‘softer’ dispute resolution is most likely to preserve a business relationship between the parties. Although adjudication is seen as less adversarial than litigation, when a Notice of Adjudication is served, this can have a negative impact on the relationship, therefore increasing the likelihood of an adversarial defence.
When compared to litigation, the motivations for ADR can include reduced party costs, speed of settlement, choice of forum, control and flexibility of process, and confidentiality.
What are the most common causes of disputes in the construction industry?
Disputes in the construction industry are common, and like all disputes, they vary in size and complexity, with most centering around money and time. Common causes of construction disputes are the lack of competence of project participants, inadequate contract administration, changes by the Client, exaggerated claims, and inappropriate payments. Other areas of dispute are ambiguity in contract terms, errors in contract documents, changes/ variations to the contract – the principle if they are changes/ variations, and secondly, the cost of such change, and poor/incorrect risk allocation.
A very common dispute and/ or difference is the validity of payment applications/ notices and pay-less notices, which are commonly known within the sector as “smash and grabs.”
How can construction disputes be avoided?
The likelihood of avoiding or having more chance of success should a dispute happen from before the contract was entered into. The contract requires to be in a suitable form for the works being undertaken, the parties, the value and complexity of the works, and the party’s appetite for risk. The contract also requires to be understood by the party’s representatives who are operating the contract, i.e., what are the notice provisions for delay, what constitutes a variation or a change, and how are claims notified and valued. Considering that a leading cause of disputes and/ or differences is the lack of competence of project participants and inadequate contract administration, it is clear that the construction industry is required to review its training of staff, resourcing of projects (are the projects either under-resourced or not equipped with the correct resource in terms of experience and qualifications).
What is construction adjudication, and what types of disputes is adjudication used for?
Statutory adjudication is the most popular form of dispute resolution for construction contract disputes in the UK and is the determination of a dispute and/ or difference within a 28-day period (or 42 days as agreed by the Referring Party (or Claimant) or such other timescales as agreed by the Referring Party and the Responding Party (the Respondent). The adjudication process can be either statutory (HGCRA 1996) or contractual and is conducted by a third-party neutral, who is nominated either by the parties (by joint agreement) or as nominated by the Adjudicator Nominating Body (ANB). The adjudicator is generally requested to have a particular background, experience, and skills to resolve the dispute. For example, in the event the dispute regarded defective works, it may be beneficial for the adjudicator to have an architectural background, whereas, for a quantum dispute (such as the valuation of a variation or loss and/ or expense claim), it would likely be beneficial for the adjudicator to have a background and qualifications in quantity surveying.
Adjudication allows a party to refer a dispute and/ or difference for determination at any time, allowing issues to be resolved quickly and if necessary, during the course of the works – this allows for a temporary binding decision, with the losing party paying first and arguing in a more formal setting (such as litigation or arbitration) at a later stage.
Adjudication is supported by the courts, and the conclusion in the Latham Report was that the system of adjudication ‘must become the key to settling disputes in the construction industry’.
What are the benefits of construction adjudication?
Construction adjudication offers several benefits to parties involved in construction disputes, contributing to the efficient resolution of conflicts and the successful completion of projects. Firstly, adjudication provides a swift and cost-effective means of resolving disputes. Unlike traditional litigation, which can be protracted and costly, adjudication proceedings are typically expedited, with strict timelines for the submission of evidence and the rendering of decisions. This allows parties to obtain a resolution in a timely manner, minimizing delays and disruptions to the construction process.
Secondly, construction adjudication offers a flexible and adaptable approach to dispute resolution. The process can be tailored to suit the specific needs and circumstances of each dispute, allowing parties to choose adjudicators with relevant expertise and experience in the construction industry. Additionally, adjudication allows for the consideration of technical and complex issues by knowledgeable professionals, ensuring that disputes are resolved effectively and on their merits.
Thirdly, adjudication promotes transparency and fairness in the resolution of disputes. Adjudicators are required to act impartially and make decisions based on the evidence presented by the parties without bias or prejudice. This helps to instil confidence in the integrity of the process and the fairness of the outcome, fostering trust and cooperation among stakeholders.
Furthermore, construction adjudication can help to preserve ongoing business relationships between parties involved in construction projects. By providing a structured and formal mechanism for resolving disputes, adjudication enables parties to address their grievances in a constructive and professional manner without resorting to acrimonious litigation. This can help to maintain positive working relationships and facilitate the successful completion of projects, benefiting all parties involved.
In conclusion, construction adjudication offers numerous benefits, including speed, cost-effectiveness, flexibility, transparency, and the preservation of business relationships. By providing a fair and efficient means of resolving disputes, adjudication contributes to the overall success and viability of construction projects, helping to ensure their timely completion and the satisfaction of all parties involved.
What are the costs for construction adjudication?
Parties are liable for the costs and expenses of preparing their case. They may, however, following the issue of the Notice of Adjudication and by agreement (in writing), confer power on the adjudicator to award party costs. Depending on the size and complexity of the case, each party may instruct their own counsel and experts. However, adjudication was designed so that a party could prepare their own case and self-represent without external legal assistance. Given the size and complexity of construction disputes, combined with the complexities of competing arguments and case law,
it is not common for this to happen, with parties generally appointing legal assistance.
The parties are jointly and severally liable for the adjudicator’s costs and expenses. Adjudicator rates can vary, however, and are commonly between £300 to £450 per hour, depending on experience and qualifications. Generally, the policy adopted is that ‘costs follow the event’ and may be adjusted depending on a party’s success. In most cases, it would be foreseeable that the unsuccessful party would be liable for most, if not all, of the adjudicator’s fees and expenses.
What is the process for construction adjudication?
The adjudication process commences with the issue of the Notice of Adjudication of the Referring Party. This Notice is served to the other contracting party, the Responding Party. The Notice sets out the nature of the dispute and/ or difference and the redress sought. The parties can, by joint agreement, name and nominate an adjudicator. However, it is generally difficult to reach an agreement once the parties are locked in a dispute. The contract generally provides for an ANB (Adjudicator Nominating Body) (such as CIArb, RICS, UKA, TeCSA), where the Referring Party then seeks adjudicator nomination from the relevant ANB stated in the Contract. Once an adjudicator is nominated, the Referring Party issues their Referral (and within seven days of the Notice of Adjudication), which then cloaks the adjudicator with the power to act and issue directions. The issue of the Referral also starts the clock of the 28-day process (or otherwise extended). The Referral is the Referring Party’s statement of case and is generally supported with appendices comprising expert reports, witness statements, and other such evidence as required in relation to the dispute. The Responding Party then is generally directed by the adjudicator to prepare and serve their defence – the Response. This, again, is generally supported by an array of appendices to rebut the Referring Party’s case, which may include a counterclaim as part of their defence. It is interesting to note that statutory adjudication under the HGCRA does not prescribe the Response. However, it is clear that a party has a right to defend a case made against them. The adjudicator will then direct a Reply to the Response from the Referring Party; following receipt of this, the adjudicator may then direct a Rejoinder to the Reply from the Responding Party. Again, this depends on the nature of the case, the complexities and the timescales. The parties may request that an oral hearing be convened, or indeed, the adjudicator may direct that an oral hearing be in order to understand the issues, the party’s case, or the evidence. The adjudicator then proceeds to their Decision, which, to be valid and enforceable, must be served within the statutory or agreed timescales. The adjudicator’s decision is temporarily binding and does not finally determine the rights of the parties (unless the parties agree otherwise). The Decision, if issued with reasons, explains the adjudicator’s decision-making and on what basis they make decisions. Again, the Referring Party may request that the adjudicator does not provide reasons; the reason for doing so may be to save costs.
Are you able to challenge an adjudicator’s decision on enforcement?
Adjudicators’ decisions can be challenged, however, for limited reasons, and the general approach of the courts is to enforce adjudicators’ decisions. Should a decision be challenged, the losing party would need to demonstrate that the adjudicator either had no jurisdiction to arrive at their decision or that there was a material breach of the rules of natural justice. Should a party form the view that the adjudicator has no jurisdiction to act or continue with the adjudication, their position should be made clear and at the outset that it forms this view. The party then has two options, to participate or not. It would not be wise for a Responding Party to sit silently and not defend its case on the supposition that it will be successful in the challenge of the decision.
If a party is dissatisfied with an adjudicator’s decision, it is free to pursue a final resolution of the dispute through litigation or arbitration.
What should one expect from the construction adjudication process?
Construction adjudication could now no longer be considered as an alternative, as it is the main method for parties to resolve their construction disputes in the UK. This is supported by the view of Lord Justice Coulson, made in the Court of Appeal, that adjudication “is not an alternative to anything; it is the only game in town” (John Doyle Construction Limited (in liquidation) and Erith Contractors Limited). This is due to the fact that the parties are able to seek a resolution of their dispute and/ or difference in an expeditious and confidential way. The construction industry is a fast-paced industry, and parties cannot wait months for a resolution to their dispute.
The parties should expect an adjudicator’s decision that meets the needs of the case, decides the issues, and has been reached by an experienced individual with appropriate qualifications.
A new form of ADR – RICS Conflict Avoidance Process.
This is an early intervention process in construction and engineering projects to ensure that issues that are emerging are resolved by the parties involved without recourse to costly and time-consuming dispute resolution processes. The process involves the input of a seasoned industry consultant, drawn from any discipline, who will work with the parties and come up with a series of binding or non-binding recommendations. Anecdotally, the process has been very effective in resolving issues between the parties and in allowing them to carry on and complete the projects in a spirit of trust and mutual cooperation. In Scotland, there has been excellent support for the Construction Industry Collaborative Voice (CICV), and construction organisations like SBF, SELECT, CECA, SNIPEF, BESA, and the Finishes and Interiors sector have all signed the Conflict Avoidance Pledge and have encouraged their membership to do likewise. So far, over 430 construction organisations throughout the UK have signed the Pledge, and members of SBF are encouraged to do so by following this link – www.rics.org/capledge. The Conflict Avoidance Coalition Steering Group is chaired by Mr Len Bunton, a well-seasoned and leading dispute practitioner in the UK.
Sources of assistance:
(2021). Wilmot-Smith on Construction Contracts (4th ed.). Oxford University Press.
(2018). Coulson on Construction Adjudication (4th ed.). Oxford University Press.
(2021). Keating on Construction Contracts (11th ed.). Thomson Reuters (t/a Sweet & Maxwell).
(2013). The Jackson ADR Handbook (1st ed.). Oxford University Press.
Nazzini, R & Kalisz, A 2023, 2023 Construction Adjudication in the United Kingdom: Tracing trends and guiding reform. King’s College London. https://doi.org/10.18742/pub01-161
Andrew D. Reid, BSc (Hons), Dip.Adj, LL.M, FCIArb, FRICS, MCInstCES, MCIOB, NECReg
Director, ADRQS Ltd.
24 Blythswood Square, Glasgow, G2 4BG
Tel: 0141 674 8699
Email: [email protected]
Published by: Lawyer Monthly – 1st May, 2024