Adjudication is failing the very people it was designed to help – the small contractor with a low-value claim that needs a quick and cheap decision. So what’s to be done?
Most of my commentaries on the review of the Construction Act have concentrated on payment. However, I am becoming increasingly edgy about the future of adjudication. As I go around the industry, I’m often confronted with tales of woe about the costs involved – both the legal costs and the adjudicator’s fees.
Mary Cross, a barrister working for an international disputes consultancy, has supplied me with some interesting vignettes, such as the building contractor that claimed £10,000. Its legal costs were £2400 and the adjudicator’s fees were £2400. Its award was £0.
Or the small ceiling contractor that claimed £46,000 plus interest. Legal fees rose to £8700 because of the large number of jurisdictional challenges from the other side. The adjudicator’s fees were £4200, split 50/50 with the other side. The contractor was awarded £21,000. Or the small building contractor owed £10,000 for preliminaries arising from delays. Its total legal fees were £4000 plus the adjudicator’s fees and costs, which are likely to be greater than £2000.
These figures serve to reinforce the conclusion reached by Hammonds in its survey earlier this year: that the cost of adjudication, particularly adjudicators’ fees, had increased disproportionately for low-value disputes (4 February, page 52). This was not necessarily the result of adjudicators having to pay more for their BMWs. Their time is often taken up with too much “lawyerising” over jurisdiction. Fourteen per cent of adjudications involve sums of less than £10,000 but the average fee for these disputes is 12.4% of the sum claimed, compared with an overall average of 5%. Half of all adjudications are for sums of less than £50,000. Have we now, therefore, reached the point where it is no longer cost-effective to go to adjudication for claims under this amount?
According to Cross, the answer is yes. She referred me to the case of an M&E contractor that went into administration after more than 40 years in business. One of the administrators examined the accounts and found its unpaid retentions came to more than £1.5m. This was made up of hundreds of small amounts ranging from £500 to £5000. It would have been pointless to refer these matters to adjudication.
The DTI is committed to outlawing provisions requiring the referring party to pay all the costs of the adjudication – the Tolent clause. The DTI is also committed to banning adjudicators from awarding party and party costs, although it is relaxed about allowing the parties to reach agreement on this after the referral of the dispute. I would reject the notion that the losing party should pay the legal costs of the winning party in an adjudication. Supporters of this idea do not appreciate the fundamental nature of adjudication. It is a stop-gap, not a forensic inquiry aimed at establishing the ultimate winner or loser.
Have we reached the point where it is no longer cost effective to go to adjudication for claims under £50,000?
There is an overwhelming case for increasing adjudicators’ jurisdiction to deal with matters such as whether there is a dispute. A single adjudication procedure would also eliminate disputes about whether a bespoke procedure complies with the Construction Act.
Cross has developed a DIY toolkit to help prospective adjudication users achieve the confidence to conduct their own disputes through adjudication.
I tend to be wary of “toolkits” because they never seem to have the answers for the particular problem one is trying to address. This is certainly is not the case here; Cross has developed an interactive web-based program. If you are unfamiliar with IT, don’t be put off. The program is simple and if you get stuck there is a technical helpline. And if you have a small claim, this could be a godsend – email email@example.com to find out more.
Finally, it was clear that the legislators had in mind a quick and cheap procedure that could easily be conducted by the parties. That is what the industry wanted too. In that respect, the views of my own profession or of Mr Justice Jackson and the Technology and Construction Court judges do not necessarily count.
Rudi Klein is a barrister and chief executive of the Specialist Engineering Contractors Group.