Will we, therefore, promptly withdraw these offensive clauses and tell our clients to stop rocking the boat? No, at least not for the foreseeable future. But before the next onslaught of criticism, it is important to answer a few key questions.
First, do we want to evade or undermine the statutory right of adjudication? Definitely not. The clients who want the stakeholder clause all have an excellent record in avoiding or negotiating disputes. They accept the need for adjudication in the industry, although they are anxious that disputes may go down this path that could otherwise have been settled through negotiation.
In addition, they are concerned that a 28-day quasi-judicial process may not always produce the right result. We can offer no guarantee that our clients are choosing the right adjudicator and that they will see or take on board all relevant evidence. The fear of adjudicator errors and omissions is bound to loom large.
For our dispute-averse construction clients, a wrong decision puts large amounts of money (frequently public money) at risk.
That is where the stakeholder account comes in.
What does a stakeholder account do?
The term "stakeholder account" describes a holding account (operated by a bank or solicitor or another independent party) from which money is released only by agreement or in accordance with a court judgment or arbitrator's award. It earns interest for the party to whom it is ultimately paid.
This account will ring-fence money awarded by an adjudicator if, and only if, one party litigates or arbitrates an adjudicator's decision. No one will embark on this process where the adjudicator's decision is clearly correct. The stakeholder account is a measure of last resort. In nearly all cases, the parties should see the sense in the adjudicator's decision and the money will be paid.
- The stakeholder account is a holding account from which money is released only in accordance with a court judgment
- The account clause does nothing to undermine the statutory right of adjudication
- The account
What about subcontractors?
It is said that main contractors adopting the stakeholder account will shortchange subcontractors by threatening litigation or arbitration, because subcontractors simply cannot afford to see their money ring-fenced for a long period. This risk says more about the lack of genuine change in main contractor/subcontractor relationships than it does about justifying unconditional release of funds on an adjudicator's wrong decision.
Subcontractors needed protection and they got it in the Construction Act. But at the end of the day, it is still the client's money we are talking about. Clients need to understand the subcontractor's position better and direct contact through the Egan report recommendation of partnering the supply chain should encourage the growth of trust. Without this, some clients fear that a remote, disgruntled subcontractor could set in motion a domino effect of unwanted adjudications, potential wrong decisions and money at risk.
What is the way forward?
With better-known and respected adjudicators, clients will become less nervous that their decisions will go wrong. To accelerate this process, I endorse the "project adjudicator" approach, singling out someone who can be brought on board from the beginning and be briefed regularly on project progress. The adjudicator is often referred to as the "referee", but what is the good of a referee if he is not on the pitch when a foul is committed? We also need knowledge of completed adjudications. There should be records available from adjudicating bodies, and the confidentiality of the adjudication process should be reconsidered, in order to establish whether good decisions are being reached and accepted.
What about insurance?
The underlying concern (particularly for the public sector) is that money paid on an adjudicator's wrong decision will disappear if the contractor or consultant goes bust before the matter is litigated or arbitrated.
Alternatively, the money might simply be spent and the contractor or consultant might not have the funds to pay it back. Can the insurance market offer a product covering liability where an adjudicator's decision is overturned? This could underwrite the expected anxiety of insurers as they come to address whether they are willing to pay out large amounts on an adjudicator's decision in a defects claim.
David Mosey is partner and head of construction at Trowers & Hamlins Solicitors