It was always anticipated that subcontractors would be the main beneficiaries of the Construction Act, and this is confirmed by the statistics. However, it is clear that the act is also benefiting the other contracting parties.
Architects and quantity surveyors are using it to recover fees set-off by employers – but only if large sums are involved or the consultant is particularly aggrieved by an accusation of poor services.
Employers rarely initiate adjudications against contractors, choosing to use their control over the project funds to negotiate from a natural position of strength. They invariably appear in adjudication after retaining fees from their professional advisers. Many of these cases sail perilously close to accusations of negligence – much easier to suggest in adjudication than in litigation. (In such instances professional indemnity insurers may be forgiven for having misgivings about the new legislation.)
What is shocking about these cases is the total sum of money being claimed by the industry: £7.1m was either being withheld or disputed as due. Prior to the Construction Act it is certain that many of the firms concerned would have been in severe financial difficulty as a result.
The cost of adjudication
The disputed sums ranged from £5000 to £794 000; on average, 75% of the sum claimed was recovered. Interest is almost always awarded to the claimant, but the main issue of contention is the claimant's legal costs.
There are a range of different "schemes" being applied to the adjudication procedure, depending on the nominating body was used. Some of these expressly state that each party shall bear its own costs. The average sum in dispute is about £100 000 (the median is £36 000) and the typical cost of producing a referral is £4500; fees range from £800 to £20 000.
With some procedures, the inability to reclaim this money can prove a bitter pill for claimants to swallow. A recent case in the Technology and Construction Court upheld the adjudicator's decision that he could apportion costs between the parties where the statutory Scheme applied.1 Anyone considering adjudication should ask their advisers what the cost implications are for a particular scheme.
Representation fees are those charged by consultants preparing the notice and referral, and are governed by the complexity of the argument and the quality of information available. Contingency fees, which are based on a percentage of the sum recovered, have been used for some proceedings, but an hourly rate is more usual. In general, the cost for referral bears no relation to that incurred in arbitration over similar issues.
The amounts ordered to be paid over in issued decisions have ranged from £3500 to £623 000, so large sums of money are being evaluated within the limited timescale set by the Construction Act. Many companies are, however, refusing to honour these decisions in spite of the willingness of the courts to uphold them. Claimants are therefore using the new Civil Procedure Rules to apply for summary judgement under part 24, and in most cases an application for abridgement of time is included. Typically, a solicitor charging £150 an hour (Bristol rates) will ask for £1600 to make such an application to the court (inclusive of court fees), but again, the claimant is well advised to seek assurances as to the costs of such procedures prior to issuing instructions.
In terms of the actual adjudicators fees, the typical figure seems to be about £70 an hour, although in some instances figures as low as £45 an hour have been suggested. A higher figure than £70 would not be out of place, depending on the experience of individuals and qualifications.
What the adjudications are about
As can be seen from the figures below, the majority of cases involve the interpretation of the contract. The terms that most often need clarifying are those dealing with payment, loss expense, and so on. This suggests that adjudicators should have either a great deal of experience in construction contracts or an in-depth knowledge of contract law.
The other main area of dispute, that of withholding notices will surely diminish as the industry comes to terms with their requirement. The lack of such a notice is an obvious trigger for adjudication, and provides a clear course of action for the adjudicator. However, even where notices are issued, adjudication could follow if the sum is disputed.
It is not anticipated that industry acceptance of withholding notices will reduce the number of adjudication, however, since they have long been a requirement in some contracts, and issues of money will always lead to dispute. In fact 97% of all our adjudications have been over money, which would have been very expensive to recover prior to the act.
Adjudication is working, and is serving the industry it was created for. In many cases the serving of the initial notice initiates negotiation or prompts payment.
1 John Cothliffe Ltd vs Allenbuilds North West Ltd
Postscript
Peter Gracia is a consultant specialising in construction law, and provides seminars and training in construction contracts. He can be contacted on 07990-572866.
