A Guide To Adjudication

Adjudication is an effective method of quickly, cheaply, and privately resolving construction disputes. According to a 2023 report, 2,078 referrals to Adjudicator Nominating Bodies were made between May 2022 and April 2023. The most common value of an adjudication claim was between £125,000 and £500,000. As to the type of dispute, the leading three causes were:

– lack of competence of contract participants at 48%
– inadequate contract administration at 42%
– changes by client at 32%
– exaggerated claims at 30%
– adversarial industry culture at 27%

What is adjudication?

The Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996) introduced statutory adjudication, which:

– Applies to parties engaged in a ‘construction contract’ and cannot be opted out of.
– Follows a 28-day procedure (with the option to extend by mutual agreement).
– Is commonly referred to as a ‘pay first, argue later’ mechanism for resolving construction industry disputes.
– Aims to safeguard cash flow during construction.

Adjudication is suitable for addressing various claims, including:

– Interim payments.
– Delay and disruption of the works.
– Extensions of time for project completion.
– Defects in the works.
– The final account.
– Additionally, adjudication may cover more complex claims such as:
– Breach of contract.
– Contract termination.
– Professional negligence.

The Construction Act 1996 provides the right for a party to a construction contract to refer a dispute to adjudication ‘at any time.’

The Scheme for Construction Contracts 1998 is a fallback when a construction contract lacks written adjudication provisions from Section 108 of the Construction Act 1996.

An Adjudicator’s decision is interim-binding until the dispute is conclusively settled through legal proceedings, arbitration, or agreement. These decisions are typically enforced in the
Technology and Construction Court (TCC) and are seldom successfully challenged by the losing party.

Before initiating adjudication, a party must ensure the dispute has crystallised (see below), clearly define the dispute in the notice (usually limited to one dispute unless the contract allows otherwise), and adhere to the contract’s time limits.

Upon receiving a notice of adjudication, parties should assess the existence of a construction contract, its terms, whether a dispute has crystallised, if the referred dispute aligns with the crystallised one, whether a single dispute is under consideration, and whether the Adjudicator’s appointment is valid.

After the Adjudicator issues a decision, both parties should assess whether it was timely, review for clerical errors or mistakes that require correction, and ensure that the Adjudicator followed the rules of natural justice, avoiding conflicts of interest and acting fairly without bias while staying within their jurisdiction. Additionally, parties should confirm that the Adjudicator addressed the correct question, even if there are errors in legal interpretation, as the Adjudicator must respond to the questions posed.

How do I know if a dispute has crystallised?

Section 108 of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996) provides that:

“A party to a construction contract has the right to refer a dispute arising under the contract for adjudication…”

This means there is no statutory right to adjudicate unless there is a ‘dispute’.

A formal claim must be initiated for a dispute to be considered crystallised. This claim needs to be documented in writing and directed to the intended respondent, clearly articulating the
sought-after outcomes and the rationale behind the claim. While the dispute brought to adjudication should generally align with the content of the initial claim, it doesn’t need to mirror the claim in exact terms.

If you believe a dispute is likely to arise, it is vital to lay a paper trail to establish that a claim has been laid and the other party has either denied or admitted the allegations.

The Courts will not enforce an Adjudicator’s decision if it is proved that the adjudication notice was sent before the crystallisation of the dispute.

What is ‘smash and grab’ adjudication?

Smash and grab adjudication exclusively centres on the swift recovery of funds owed for an outstanding application or unpaid payment certificate. Unlike broader adjudication processes that aim to determine the accurate value of an account or application, smash and grab is focused on enforcing payments promptly. It operates within the framework of payment notice rules, prioritising the fast payment of monies rather than delving into the underlying issues.

Can an Adjudicator’s decision be challenged?

An Adjudicator’s decision regarding the payment of a sum of money can be challenged on the following grounds:

– The Adjudicator had no jurisdiction to make a decision.
– There was a material breach of the rules of natural justice (the right to a fair hearing by an impartial tribunal).

If none of the above apply, the Technology and Construction Court (TCC) will enforce the decision against the paying party.

It is also possible to challenge an Adjudicator’s decision on the grounds of fraud. However, if you plan to do this, you must bring any such allegations to light as soon as possible and have robust evidence to back up your claim.

Get expert legal advice

To ensure your best interests are protected, getting advice from an experienced Construction Law Solicitor when referring a dispute or responding to a Notice of Adjudication is imperative. They will advise you as to whether a dispute has crystallised and the appointment of an Adjudicator, as well as guide you on preparing for and attending the adjudication hearing.

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