Don't let's fight...

Disputes are, unfortunately, an indelible part of the construction industry. And these disputes are often a one-sided affair because one party holds the purse strings, making arguing against them financially unviable in the short term and business suicide in the long term.

The Housing Grants, Construction and Regeneration Act 1996 – the Construction Act – was introduced last year to combat such bad practice. As well as ruling out things like onerous contract clauses, the Act attempts to make sorting out disputes easier. To do this it has introduced adjudication.

Adjudication is designed to speed up dispute resolution, making it cheaper and giving the complainant a fair chance of contesting a dubious decision and achieving a result without going bankrupt.

An adjudicators' fees are a little cheaper than those of an arbitrator, at £70-130 per hour as opposed to £90-180. The big savings accrue over the reduced timescale – most adjudications are resolved within 28 days while arbitration can run on and on.

It is seen as a godsend to the specialist contractor. So much so in fact that the Specialist Engineering Contractors' Group (SECG) recently hosted a mock adjudication to explain it.

Rudi Klein, barrister and chief executive of SECG, hosted the event and acted as technical interpreter. Those participating in the adjudication were: Robert Dorrington, playing himself as adjudicator; Chris Sneath, past HVCA president, playing Geoff Genius md of m&e subcontractor Genius Engineering; John Harrower, SECG chairman, playing Barry Bodgit md of Bodgit Construction; Clare Bristow, HVCA commercial and legal advisor, playing Clare Plonker of m&e consultant Plonker Associates and Roger Button, partner in Eversheds law firm, playing himself, a legal expert.

The dispute

The two parties, Genius Engineering and Bodgit Construction, are in dispute over the supply and installation of fan coil units on a hospital project for the Bubonic Plague Authority. Plonker Associates prepared drawings of the air conditioning installation, "for assistance and guidance purposes only". Genius Engineering, under a DOM/1 form of subcontract, was required to prepare detailed drawings illustrating components and sections of work and provide information needed to co-ordinate the works.

This was done and, due to a long lead time, ordered the fan coil units, as specified. Four months later, when the units came to be installed, it was discovered that there wasn't room in the ceiling void and extensive work was required to get over the problem.

Genius Engineering claimed £75 000 from Bodgit Construction for the additional work required to install the units. Bodgit failed to issue an instruction under clause 4·2 of the subcontract acknowledging that there had been a variation and so after chasing Bodgit for payment, Geoff Genius referred the dispute to an adjudicator.

There are a number of requirements cited in section 108 (1) to (4) of the Construction Act with regards to adjudication:

• the right to refer to an adjudicator "at any time" any dispute or disagreement;

• the intention to achieve appointment and referral within seven days – the adjudicator should be appointed and the details of the dispute be on his/her desk within seven days;

• a decision should be reached within 28 days of referral unless the parties agree otherwise;

• the adjudicator may extend the decision by up to 14 days with the consent of the complainant;

• the adjudicator has a duty to act impartially;

• the adjudicator takes the initiative in ascertaining facts and law – the adjudicator should be allowed to investigate on or off site to achieve a decision;

• the adjudicator and employees/agents have immunity – the losing party cannot sue the adjudicator.

If all of these provisions are not contained in any contract then there is a standard form of provisions laid down in the Act that will automatically apply. Statutory instrument No 649 1998: The scheme for construction contracts (England and Wales) Regulations 1998 should be consulted.

The adjudication

In SECG's mock adjudication, Genius writes to the adjudicator outlining the dispute and enclosing correspondence between himself and Bodgit Construction. Dorrington replies, suggesting a meeting with Bodgit; here he sets out his terms and the case so far.

Genius is then allowed to put forward his case. He explains that his company entered into a contract with Bodgit Construction for m&e works on the hospital at a subcontract price of £350 000. Considerable alterations had to be made to the services to accommodate the fan coil units in the ceiling, resulting in extra costs of £75 000. Bodgit has refused to pay.

The contract was signed on 15 May 1998 and is an applied subcontract under DOM/1. There are no provisions for adjudication in it. However, the Construction Act, which came into force on 1 May 1998, includes provisions for adjudication and this will apply.

Bodgit, of Bodgit Construction, responds. Firstly he questions the adjudicator's impartiality, technical qualifications and jurisdiction over the dispute. If Bodgit chooses to dispute the choice of adjudicator the parties can go to an adjudicator-nominating body like the CIOB, ICE, RICS, RIBA etc.

Bodgit also claims that because Genius Engineering brought the adjudication into being it should pay all of the adjudicator's costs. These are classic tactics to delay the action and intimidate (see factfile - Beware of the traps).

Once satisfied of the adjudicator's credentials, Bodgit cites that Genius has brought all of the problems upon himself. Bodgit says the expertise for the design on the project should come from Plonker and Genius. He claims that Bodgit Construction was not consulted on this problem and that it relied on the expert advice of these two parties.

Genius responds. He says that Bodgit must know about the problem because he is the main contractor on the project.

While the representatives from each company are, in this case, the mds, this is not compulsory. The person should simply have good knowledge of the case and also be able to present it clearly because, under section 16 (2) of the Scheme, they will be the only person allowed to present oral evidence. This keeps the proceedings short.

To progress the case further the adjudicator has to gather evidence. He can do this in a variety of ways. Section 13 of the Scheme states: "The adjudicator may take the initiative in ascertaining the facts and the law necessary to determine the dispute..."

Firstly, he requests documents from both sides to be delivered to him within the next five days. From Genius he asks for details of how exactly he arrived at the £75 000 claimed: rates, quantities and any savings made due to the extra work. Also he requires any notices that were issued to Bodgit under clause 4·4 of DOM/1.

From Bodgit, he requests replies to notices issued by Genius, a copy of a marked-up barchart showing forecast and actual progress on the job, the cost/value reconciliations, tender allowances for site running costs, site meeting minutes, progress records and any notification of extension of time and the reasons for it. He also asks for the reasons that Bodgit disputes the claim.

Some of documents may be seen to be extremely sensitive by a particular party. Both sides should, however, endeavour to supply what is requested. If they fail to, under section 15 of the Scheme, the adjudicator will draw his own conclusions.

After hearing the evidence from both sides the adjudicator investigates the case, talking to parties on the project and legal and technical experts.

In this case the adjudicator holds a meeting with Clare Plonker of m&e consultant Plonker Associates and Roger Button, legal expert. Plonker is questioned about Genius Engineering's work. She reveals poor labour management and site upheaval due to a constantly changing labourforce. Plonker also claims that Genius didn't produce the drawings on time – they were three weeks late.

Button, the legal expert, explains Genius' obligations under DOM/1. He states that it is not a design contract. Genius Engineering has no design obligation but it does have an obligation to notify of design problems. In this instance no-one noticed the problem and Genius has no obligation to seek out possible problems.

After interviewing the two experts the arbitrator goes back to Genius and Bodgit with his findings. Genius responds stating that the fan coil units installed were exactly those specified; the units were ordered in good time; there was no evidence to suggest that the false ceilings wouldn't accommodate the units; ten copies of drawings were submitted to Bodgit, and approved; and that his company is not responsible for design and has had no liaison with the design team. Concerning the labourforce, Genius contends that although agency labour was used at times a directly employed foreman controlled it.

Bodgit's comments on the experts' views is to agree with Plonker: that site supervision was poor, co-ordination of works terrible, labour unsatisfactory and that the drawings were not produced on time or to site dimensions.

Bodgit also contends that the fan coil units were ordered prematurely and that Genius did have a responsibility to liaise with the consultants because the main contractor cannot be an expert on every discipline on the project. Bodgit says that Genius underpriced his works at the outset and now he is trying to make up his profits by putting in a false claim.

The verdict

The 'summing up' by each party is something that most adjudicators will allow, giving the parties time to round up their feelings about the dispute. The adjudicator then makes a decision.

In this case, he finds the valuation for extra works to be £55 000, not £75 000 as claimed by Genius – Bodgit is ordered to pay Genius £55 000 plus interest and both parties will pay an equal portion of the adjudicator's costs.

This case is a simple example of a adjudication – settling a dispute without taking it to court. Contractors should be aware of adjudication and use it to their advantage. They need no longer be afraid of contesting unfair practices because they will not be able to afford to back up their argument.