Under the DTI review, payers and payees call in the adjudicator if they can't agree how much is due. The referee must rule on the spat, but shouldn't play detective
Credit where it's due: the DTI is making a fair fist of its review of the Construction Act. It published its response to your views in its last consultation a couple of weeks ago. And now the legislation is to be amended. The DTI has narrowed down its likes and dislikes but is still asking you to have a say on those amendments.
The real thrust of the 1996 Construction Act was to get to grips with sharp practice and idleness in the managing of cash flows. One or two improvements will be welcome, although I confess I'm not too clear on what the DTI is proposing. I will come to that in a moment. adjudication is also on the agenda for a bit of tinkering but the priority is cash flow.
The proposed change focuses on what I call the green payment notice, known officially as the section 110 notice. The original idea was that the payer would give advance notice of the amount of money that it was going to pay the payee. The green notice specifies the amount and basis on which it is calculated. So every employer is supposed to send that to the main contractor and every main contractor is supposed to do the same with all its subcontractors. Now the DTI is proposing to scrap the green notice altogether.
Instead, the contract will require (I think) monthly negotiations, which lead to a certificate. In subcontracts or contracts without payment certificate machinery, the application for payment becomes the likely amount due.
Or rather, it is the application that requires negotiation. The emphasis is to shift from giving a notice of intended payment - in other words, a fait accompli - to establishing what should be paid. And, if payee and payer cannot agree, there is to be an "informed referral" to an adjudicator. I like the sound of this.
So, assume this is a subcontract. The subcontractor compiles an application for payment. The main contractor pipes up with an objection. There is a period for explanation and discussion. The objection stands, so the bumf goes to the adjudicator.
The adjudicator has no need for his detective hat. He is there to adjudicate on the arguments previously canvassed by the parties
The adjudicator asks a cheap-and-cheerful question of the bumf: "Was the application for payment clear and convincing enough that it should have been paid?" He adjudicates on how efficient the subcontractor was when putting up his application for payment. If the application appears to have been properly calculated and supported, but the response of the main contractor was off-hand or rude, the adjudicator will no doubt find the application convincing.
The application for payment has to be an "informed application" and woe betide the subby that bungs in one that isn't supported. Woe betide the main contractor that limply rejects the subby's application. To adjudicate by asking if the application was convincing is cheap. But, if an adjudicator starts to behave like Perry Mason, the fees will hit the roof. So, adjudicators, just adjudicate on what the application sought to prove and on the evidence in it. If the main contractor responded with more convincing commentary, just adjudicate on that material.
As for main contracts, the focus is on the certifier. Remember, this person is usually a third party, such as an architect, QS or engineer, that impartially evaluates the interim account. That too is to be the focus for a period of negotiation and argument. And if the employer or contractor thinks the certificate is too high or too low, those quarrels are brought to the adjudicator by way of an informed referral. So, the adjudicator has no need for his detective hat; all he does is ask if the certificate was convincing. He is there to adjudge the arguments previously canvassed by the parties. Be careful about allowing in new arguments once the adjudication begins. Adjudicate on what the certifier did. Don't add new arguments not put to the certifier when they were making their calculations.
Adjudication was always intended to adjudicate on whether the architect had given a fair valuation or fair extension of time on the story he had in front of him, not the story now put to the adjudicator, or one they think up all on their own. The DTI approach will do much to correct ambiguous use of adjudication and high costs.
Tony Bingham is a barrister and arbitrator specialising in construction, email@example.com.