A leaked letter from the DTI is very revealing as to the latest government thinking on reforms to adjudication, particularly its apparent disregard for the construction industry’s views

Sssh! I had some secret bumf slipped to me the other day. I’m not supposed to tell you about it. It’s a letter from the new man at the top of the construction unit at the DTI and it was sent to the Construction Industry Council on 22 September. The new man, Denis Walker, and his legal advisers have prepared a paper “on specific proposals we wish to take forward”… on adjudication.

Now hang on a minute – proposals “we wish to take forward” isn’t the same as proposals “we” have detected that the industry wishes to take forward. The whole endeavour of the Construction Act in 1996 was to reflect what this industry wanted. It was astonishing but welcome that parliament was willing to cough up what we wanted; don’t now impose on us what the DTI wants.

There are four items of “detailed policy” put up by the DTI for discussion. None of which I have heard of before. None of which came up for discussion last February at the DTI when hundreds industry folk supposedly discussed “detailed policy”. And if they had come up there would have been heard cries of “rubbish” from the floor.

One of the four items in this secret paper is about the need for contracts to be “evidenced in writing” in the current act; it is known as the section 107 mistake. In 1996 the bill going through parliament required contracts to be evidenced in writing before parties could adjudicate. The years since have seen masses of waste because of that mistake. Astonishingly, the DTI wishes to change the hurdles. It is proposed that two items be “in writing”, namely “the scope of work” and “the contract price”. Oh dear, oh dear; there will be just as many rows about those two items as there is now. Please do the simple thing with section 107… delete it. Don’t put anything in its place. Adjudication about the existence or non-existence of a non-written term in a contract is well within the ordinary work of an adjudicator. If adjudicators can decide on the existence of a “fact” they can just as easily decide on the existence of a “term”.

Please do the simple thing with section 107… delete it. And don’t put anything in its place

While I’m at it, can the CIC please write back to the DTI and explain how simple it would be to decide disputes under oral, non-written contracts. And remind the DTI that up and down the country people pick up the phone and subcontract building work without writing anything down. That’s a reality. The act at section 107 cuts these folk out of adjudicating. They face going to court instead, and that involves the public purse.

Credit where credit is due, however. This DTI document is keen to outlaw a mistake in the Scheme for Construction Contracts. An adjudicator has no jurisdiction, according to the scheme, to revise a certificate (meaning, an interim payment certificate), which is said by the contract to be “final and conclusive”. The DTI proposes that a “final and conclusive” status for interim payment certificates will be ineffective at law. So an adjudicator or arbitrator or court can ignore what the contract says. I always feel a tad uncomfortable when parliament interferes with an express agreement in a contract. But the truth is, there is no level playing field in commerce. Unfair terms are “agreed” by twisting the other fellow’s arm up his back. So I guess parliament has to intervene.

The next proposal of the DTI is to outlaw trustee accounts. I have not seen much of this device but apparently it goes on. The idea is to include a rule in the contract that an award by an adjudicator in favour of a person owed money will not actually see the money paid over. Instead it goes into a joint bank account. It stays there until a final determination of the same dispute by a court or arbitrator. The DTI thinks that such clauses are unlawful anyway; so for the avoidance of doubt they will recommend legislation to ban it.

Finally, the DTI tackles adjudication costs. It wants to avoid doubt about the “joint and several liability” of both parties for the adjudicator’s fees. Legislation will apply that rule in contracts, which are silent about liability for fees. Also it sniffs at the notion that the original allocation of costs or fees in adjudication can be reallocated by an arbitrator or court only if new legislation says so. Yes, tricky point. Needs sorting. But please, DTI, don’t listen to yourself, listen to us. It’s the sort of lesson that some folk in parliament forget as well… at their peril.