Is it worth it?

It has become an adage that cash flow is the life blood of the construction industry. In fact, it was the desire to improve and secure that cash flow that led to the introduction of adjudication. After a slow start, adjudication has picked up and is now the remedy of first choice for anyone who considers that cash is not flowing as it should. However, with profit margins in the industry remaining low, one problem is that an adjudicator’s fee may erode all, or a substantial part, of the profit gained from the work to which the claim relates.

Surprisingly, despite the fact that there are now some 2000 appointments a year, none of the main nominating bodies collects detailed information regarding the fees charged by adjudicators. All that the nominating bodies ask is whether a party considers an adjudicator’s fee to be “reasonable”. Even this information is not made available publicly.

Research from the Adjudication Report Centre at Glasgow University, published in February 2000, provided some limited data on adjudicators’ fees. The report concluded that the average adjudicator’s fee at that time was £3369. This data was compiled, however, early in the evolution of adjudication, when take-up was relatively low (some 1000 cases a year) and the number of adjudicators more limited.

More recent research from the Adjudication Report Centre suggests that adjudicators’ hourly charge-out rates have increased. This study, published in February 2003, shows an increase in the number of adjudicators whose charge-out rate fell within a higher bracket of £101-125 an hour. Anecdotal evidence also suggests that adjudicators’ total fees have now increased significantly. This may be thanks in part to the increasing complexity of the disputes being referred to adjudication. However, a more cynical view is that this trend also reflects the proliferation of career adjudicators.

There remains a real concern, therefore, that adjudicators’ fees are frequently not in proportion to the sums at issue. Furthermore, it is feared that adjudicators often divide these fees between the parties involved in an arbitrary manner without much regard to the merits of the case or the decision they have reached.

In addition, parties have little protection against adjudicators who charge large sums of money for their services. The Scheme for Construction Contracts provides only that an adjudicator “shall be entitled to the payment of such reasonable amount as he may determine by way of fees and expenses reasonably incurred by him”. No guidance is provided as to what is “reasonable”.

Adjudication is likely to be least cost-effective when it is used to resolve small claims. While the profit percentage may be the same for a large or small claim, clearly the actual profit in a small claim is smaller in absolute terms, and can therefore be seriously eroded by an adjudicator’s fee or share thereof. This is, of course, in stark contrast to the original intention of parliament, which was to produce an effective cash-flow remedy for contractors and specialists lower down in the contractual chain.

If the industry is to determine whether adjudication does offer value for money, it needs good information as to the level of adjudicators’ fees, and how their split between the parties is impacting on the process. Hammonds is therefore carrying out a survey in conjunction with Building. The form, on Building’s website, will be used to gather data on:

• The level of the adjudicator’s fees
• Whether the fee is proportional to the sum being claim by the referring party and, more importantly, the sum eventually awarded
• The split being made in relation to costs, that is, whether both parties pay 50% or otherwise.

We would therefore be grateful if readers of could keep or record relevant information over the next few weeks and then complete the survey electronically or in paper form. This information will then be analysed and presented in a second article towards the end of the year.

To take part in Hammonds’ survey log on to www.building.co.uk/adjudication

Tracey Wood is a solicitor at Hammonds. She can be contacted on 0870 839 0000 if you have any queries about completing the survey. Send hard copies to Tracey Wood at Hammonds, Rutland House, 148 Edmund Street, Birmingham, B3 2JR.