Adjudication in construction: Resolving disputes efficiently
Adjudication is a compulsory dispute resolution mechanism in the UK construction industry, designed to provide a fast and cost-effective way to resolve disputes. William Marlow, solicitor in our construction team, explores the importance of adjudication, whether you are initiating a claim or responding to a notice.
What is adjudication?
Adjudication is a statutory dispute resolution process designed specifically for construction contracts. It provides a quick, binding decision that allows projects to continue without prolonged disruption.
Under the Construction Act 1996, adjudication applies automatically to qualifying construction contracts, and parties cannot contract out of it. The process is intended to take place 28 days, though this period can be extended by a further 14 days with the agreement of both parties.
Adjudication prioritises cash flow, ensuring that contractors and subcontractors receive payments promptly while disputes are resolved. Adjudicator’s decisions are binding until overturned by legal proceedings, arbitration, or mutual agreement.
Because of its speed and enforceability, adjudication has become the primary method of resolving disputes in the construction industry, offering a practical alternative to lengthy litigation.
When is adjudication appropriate?
Common disputes resolved through adjudication include:
- Interim payment disputes
- Delays and disruption
- Extensions of time
- Defects in the works
- Final account disputes
Adjudication can also address more complex legal issues, such as:
- Breach of contract
- Contract termination
- Professional negligence
While adjudication is a powerful tool for resolving disputes efficiently, it is not always the best option for every case. In some situations, litigation or arbitration may be more appropriate.
Key legislation
Adjudication is governed by two key pieces of legislation: the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts 1998.
The Construction Act grants any party the right to refer a dispute to adjudication at any time. This ensures that parties cannot be prevented from initiating adjudication through contractual terms.
The Act sets out the requirements for an adjudication process, including the appointment of an adjudicator and the time limits for making a decision. However, construction contracts often include their own provisions, which may modify or expand on these statutory rules.
Where a construction contract does not comply with the requirements of the Construction Act 1996, the Scheme for Construction Contracts 1998 applies.
This legislation provides a framework that ensures adjudication can still take place, even if the contract is silent or incomplete. Under the Scheme, adjudication provisions are implied into the contract, guaranteeing that the process remains accessible and enforceable.
The effect of an adjudicator’s decision
One of the defining features of adjudication is that the adjudicator’s decision is binding on an interim basis. Meaning that both parties must comply with the decision which remains enforceable unless it is overturned by arbitration, litigation, or mutual agreement between the parties.
In practice, adjudication decisions are almost always enforced. The Technology and Construction Court (TCC) has consistently upheld adjudicators’ decisions, recognising the importance of maintaining financial stability within the sector. A party that refuses to comply risk facing a summary judgment application in the TCC.
Key considerations before starting an adjudication
Before initiating an adjudication, a party must assess whether the dispute has crystallised. This is when one party has raised an issue, and the other party has either rejected it or failed to respond within a reasonable timeframe.
If a dispute has not yet crystallised, an adjudication could be challenged on jurisdictional grounds. There is clear case law surrounding what constitutes crystallisation and is something that adjudicators and the courts take very seriously.
The referring party must also clearly define the scope of the dispute in the notice of adjudication. In general, an adjudication can only address a single dispute, unless the contract expressly allows for more. If a notice attempts to include multiple unrelated disputes, the responding party may challenge the adjudicator’s jurisdiction, which could delay or invalidate the process.
Time limits are another critical factor. The Construction Act 1996 sets out strict deadlines and failure to comply can render the adjudication invalid. Once a dispute is referred, the adjudicator must issue a decision within 28 days.
Finally, parties should consider the practical and commercial implications of adjudication. While it is generally quicker and cheaper than litigation, it still involves legal costs and can be a contentious process. Seeking early legal advice can help determine the best course of action.
What to do if you receive a notice of adjudication
Receiving a notice of adjudication can be daunting, but it is crucial to act immediately and strategically. The tight timeframe for adjudication means that delays in responding can significantly affect the outcome of the dispute. The first step is to assess whether the adjudicator has jurisdiction and whether the dispute has been properly referred.
It is important to consider whether the contract qualifies under the Construction Act 1996. If it does not, adjudication may not be applicable, and a jurisdictional challenge could be raised.
It is also important to determine whether the contract’s provisions comply with the Act. If they do not, the Scheme for Construction Contracts 1998 will apply by default.
A party cannot refer a dispute to adjudication unless it has first been clearly raised with the opposing party and rejected or ignored for a reasonable period. If the dispute is premature or has not yet crystallised, the responding party may challenge the adjudicator’s jurisdiction.
The appointment of the adjudicator should also be reviewed. The adjudicator must be appointed in accordance with the contract or statutory scheme. If there are concerns about bias or conflicts of interest, these should be raised at the earliest opportunity.
If there are concerns, the responding party should reserve its rights to challenge the adjudicator’s jurisdiction while still participating in the adjudication. This ensures that, if the decision goes against them, they retain the ability to argue later that the adjudication was invalid.
Finally, once jurisdictional issues have been assessed, the responding party must quickly begin preparing its case. Effective preparation can significantly impact the outcome of the adjudication and improve the chances of a successful defence.
What to consider after an adjudicator’s decision
An adjudicator’s decision, once delivered, has ‘temporary finality’, meaning that the decision is binding until the dispute is resolved either by litigation in the courts or by mutual agreement of the parties.
Once a decision has been issued, both parties must assess its validity and enforceability. If the adjudicator fails to meet the deadline, the decision may be invalid.
One of the key principles of adjudication is that the adjudicator must follow natural justice, meaning they must act fairly, avoid bias, and remain within the scope of their authority. If a party believes the adjudicator has failed in this duty they may challenge the decision.
A common concern is whether the adjudicator has answered the correct legal question. Courts have consistently ruled that an adjudicator’s decision is enforceable even if legally incorrect, as long as they have addressed the right issue. This means that simply disagreeing with the outcome is not grounds for challenge.
If the decision is in favour of the referring party, they will likely seek immediate enforcement. If the losing party refuses to comply, the successful party can apply to the TCC for summary judgment.
For the losing party, if a challenge is planned it is essential to act quickly as failing to comply with the decision can lead to enforcement proceedings and additional costs. If there are grounds for arbitration or litigation, the losing party should seek specialist legal advice to determine the best course of action.
Conclusion
For those considering adjudication, careful preparation is key. Whether initiating a claim or responding to a notice of adjudication, parties must ensure that disputes have crystallised, that the adjudicator has jurisdiction, and that they comply with all procedural deadlines.
Failure to do so can result in an adverse decision or wasted costs. Additionally, even after an adjudicator’s decision is issued, parties must act strategically, whether to enforce, comply, or challenge the decision, depending on their legal position and commercial objectives.
Ultimately, adjudication provides certainty and efficiency for construction disputes, allowing businesses to resolve conflicts without disrupting ongoing projects. However, given its legal complexities and strict timelines, seeking specialist legal advice is always recommended.
If you have any questions surrounding adjudication disputes, then please get in touch with our construction team on 01772 258321.