Stakeholder clauses, which require money paid as a result of an adjudicator's decision to be held by a third party, are legal and offer protection to parties nervous about new adjudication.
I believe in adjudication. Main contractors were strongly in favour of statutory adjudication being included in the Construction Act and we lobbied as hard as anyone to make sure it was there. I want to make that clear at the outset, because Rudi will undoubtedly regard the argument I am about to make as a root-and-branch attack on the concept.

In my view, an adjudication clause that gives the adjudicator the option of ordering the money to be paid to a stakeholder is legal under the Construction Act. David Mosey of Trowers & Hamlins Solicitors explained in Building (8 January, page 64) why he was recommending a stakeholder provision to his clients, and made a very cogent and practical case for doing so. What he did not explore in any detail was whether this type of provision complies with the requirements of section 108 of the act.

Section 108(2)(c) provides that construction contracts must require the adjudicator "to reach a decision within 28 days …"; it does not impose any constraints on what that decision might be, and so there is nothing here to preclude the stakeholder option. Indeed, it is consistent with the function of 108, which provides a skeleton for parties that wish to write their own procedure, adding any details they wish, provided they do not conflict with 108 itself.

I can already hear Rudi quoting 108(3), which requires contracts to provide "that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration … or by agreement". But that does not rule out a stakeholder. In fact, it expressly contemplates a provisional decision of some sort that can subsequently be revised by an arbitrator or the courts. It will be a lot easier to revisit a decision that a stakeholder should hold money than, for example, re-examining the question of whether a contractor's employment was properly determined, when an adjudicator has already held that it was, and all sorts of irreversible decisions have been made as a consequence.

Section 108 also states that the parties may agree to accept the decision of the adjudicator as finally determining the dispute. This is sometimes quoted by people who believe stakeholder provisions are outlawed by the act, on the basis that the adjudicator's decision must therefore be capable of finally determining the dispute, which a stakeholder provision is not. They are missing one very important word. The parties may agree to do this – but they don't have to. If they structure an adjudication procedure that makes it clear that final determination by the adjudicator is not appropriate in some circumstances, there is nothing in the act to stop them.

Like David Mosey, I think stakeholder clauses may be short-lived. In these early days, they will comfort those who fear adjudicators will wrongly decide that large sums should be paid to shaky organisations that promptly go bust with the money. But I do think they are legal.

Something tells me Rudi just might disagree.

Postscript

Jennie Price is director of the Major Contractors Group.

Legal