The construction Act offers a “pay now, argue later” solution for firms eager to get their hands on outstanding payments. Sarah Wilson outlines the procedure
Ways and means of obtaining payment have become increasingly important as the recession has deepened. The adjudication procedure introduced by the Housing Grants, Construction and Regeneration Act 1996 is a familiar dispute resolution tool but is often overlooked in the context of fee payment.
To use the adjudication procedure, there are certain requirements that must be fulfilled. First, section 104 of the Act states that only “construction contracts” can be adjudicated. This is often not a difficult requirement to satisfy. Such contracts would include arranging for the carrying out of construction operations by others, doing architectural, design or survey work or providing advice on building and engineering in relation to construction operations.
Second, section 107(1) states that the provisions “apply only where the construction contract is in writing, and any other agreement between the parties as to any matter is effective for the purposes of this part only if in writing”.
This is usually the part upon which contracts fail. However, section 107 does, in reality, have a fairly wide definition of what is “in writing”. For example, an oral agreement referring to or incorporating one of the standard forms is covered by section 107, as is an exchange of correspondence in arbitral or litigation proceedings, where an agreement is asserted by one party and not denied by the other. In most circumstances, it is possible to construe that the contract satisfies section 107.
If the requirements of section 104 and 107 are complied with, then either party has an automatic right to refer any dispute to adjudication (section 108). The adjudication process can be particularly useful in disputes regarding interim payments or the final account.
Adjudication itself is, essentially, a “mini-trial” on a “pay now, argue later” basis. This has the advantage, particularly in these trying economic times, that payment is often made to the party owed and any further complex issues are left to be resolved at a later date. If the payment issue were resolved at trial instead, legal fees would mount up over a long period of time (usually 6-12 months) without any return until the issue was finally resolved. The adjudication process, on the whole, is less costly than litigation or arbitration.
The procedure lasts 28 days and is determined by a professional appointed by the parties. This has the added advantage of the issues being determined by someone who knows the practical side of the construction industry, as opposed to a judge who may not have any such experience.
A further advantage of the short period of time in which the dispute is heard is that it allows the referring party (ie the party that decides to adjudicate) to prepare their case fully before serving it on the other side. The other side then has an extremely short time in which to prepare a response. Essentially, the referring party has the upper hand.
The speedy adjudication process means there is less disruption if works are ongoing. Also, there can be less damage to the working relationship between the parties thanks to the more informal procedure (for example, there are no strict rules regarding evidence and often a hearing is not required).
The decision of the adjudicator is an interim binding decision, ie it is binding upon the parties unless an agreement or court order is made. It is possible to challenge the decision of an adjudicator, although it is rare for the courts to overturn the adjudicator.
If you are struggling to get payment under an appointment, adjudication is a fast and effective method of obtaining payment or at the very least, pushing the employer to negotiate a settlement.
Building Sustainable Design
Sarah Wilson is a partner in Watson Burton LLP’s construction and engineering department.