Does the Construction Act really work?

Well, has it? Writing in Building when the act became law, construction minister Nick Raynsford promised that if there were problems, he would "be prepared to consider changes". Two years on, he is set to review the legislation and it is clear that many of those affected by it are unhappy with some aspects of the way it is working.

In particular, his pledge will be seized on by subcontractors' leaders, who want amendments to prevent contractors circumventing the act's fair payment rules. However, even though the main purpose of the act was to stop subcontractors being abused, Whitehall sources say the government is likely to ignore the calls. Officials argue that the act is working well, and that it would be wrong to change it while the courts are still resolving the few contentious aspects of the legislation.

When it was introduced, the Construction Act – or the Housing Grants, Construction and Regeneration Act 1996, to give it its full title – was the culmination of the five-year Latham review, and the most far-reaching attempt ever made to rid the industry of adversarialism and contractual abuse. The main measures were the introduction of adjudication, a faster and cheaper method of resolving disputes than either litigation or arbitration, and new rules to make payment fairer, including a ban on iniquitous "pay when paid" clauses and a right to suspend work for non-payment. If contracts do not comply with the act, the government's own Scheme for Construction Contracts automatically kicks in and applies the act's provisions.

The payment rules have proved to be most controversial. Specialists are angry at the way contractors have abused the spirit, if not the letter, of the act, particularly in drafting "pay when certified" clauses to beat the "pay when paid" ban. Main contractors are more relaxed about the new system, although even they would like the legality of "pay when certified" clauses clarified.

There are concerns, too, about adjudication.

In many ways, adjudication is far more hostile than litigation

Nick Henchie, Rowe & Maw

As a special survey by Building and top law firm CMS Cameron McKenna reveals, there is considerable dissatisfaction with the quality of adjudicators' decisions and the cost of the hearings, particularly on small disputes.

There is also evidence that lawyers and claims consultants are making adjudication almost as confrontational as litigation. In a list of eight tips on adjudication circulated last autumn, Rowe & Maw solicitor Nick Henchie advised firms to "keep the preparation of the claim secret" and serve it "when the person with the knowledge of the claim from the responding party is on holiday, or just before the Christmas/Easter periods".

Henchie says he was simply reflecting the approach taken by claimants. "There is no spirit of friendliness or co-operation in adjudication. In many ways, it's far more hostile than litigation. What's the incentive to settle? You'll get a decision in 28 days."

He says claims consultants in particular are using "every trick in the book", including ambushing another party when they are likely to be away. He adds that Rowe & Maw was itself ambushed with two or three claims just before Christmas "and the same thing will happen this year". During the rest of the year, many claims are lodged on a Friday afternoon, meaning that the other party's seven-day response period will include the weekend.

The original purpose of adjudication was to provide an interim resolution for disputes before bad relations festered on site. After the project was completed, the parties would be free to take their argument to litigation or arbitration for a final decision. However, Henchie says it is common for subcontractors unhappy with an adjudicator's ruling to simply resubmit the claim in a different form. Another approach is to "store up disputes and adjudicate on them all at the end of the contract", producing a complex, expensive and intractable dispute.

The act was never going to be the holy grail. But it is working well

Jennie Price

Speaking at a seminar organised by Building and CMS Cameron McKenna earlier this month, Construction Confederation chief executive Jennie Price said contractors would like to see three main changes: for adjudications to be "better framed and better focused", for costs to be kept in proportion to the size of the dispute, and for adjudicators to be better trained.

Price added: "The act was never going to be the holy grail. But it is working well." Others in the industry agree. A spokesman for contractor Morrison, which has been involved in two of the most high-profile adjudications, said: "It wasn't a horrid experience. When the adjudicator decided against us – fine. We took it on the chin and moved on."

What you think of the act – a Building/CMS Cameron McKenna readers' survey

Nearly two-thirds of Building readers are less than happy with the quality of adjudicators' decisions – and many more are worried about the costs of the rapid dispute resolution system.

Those are the main findings of an exclusive survey on the effectiveness of the Construction Act, which was carried out earlier this year by Building and top London law firm CMS Cameron McKenna. About 100 contractors, consultants, subcontractors and clients responded to the survey.

The adjudicator decided against us – fine. We took it on the chin and moved on

Morrison Spokesperson

The survey found that firms seriously began using adjudication only after the courts declared their intention to enforce adjudicators' rulings, in the wake of the Macob vs Morrison case of February 1999. Readers reported only 16 cases before that date, but 103 afterwards.

However, the survey reveals that, in readers' opinion, 59% of adjudicators' decisions have been "poor" or "moderate". Presenting the findings at a seminar earlier this month, CMS Cameron McKenna partner Ann Minogue said: "This may result in more naming of adjudicators in contracts. It will encourage companies to choose people they know to be good and capable."

The level of dissatisfaction was particularly high among firms defending adjudication claims – not one respondent said the system works in defendants' favour . Equally worrying was the finding that, of those who thought it had an effect on the project team, 72% believe that adjudication worsens relationships. This supports the view of Rowe & Maw's Nick Henchie that the regime is becoming confrontational.

The cost of adjudication is another key concern, particularly as most cases concern small payment disputes of less than £100 000. Indeed, as the charts show, if readers are willing to use adjudication, it will be for simple claims. However, costs can exceed claims in disputes over sums of less than £10 000.

The highest level of disappointment was expressed in relation to the failure of the act to redress unjustified non-payment. Ninety-five per cent said they had been optimistic in 1998 that things would change, but only 54% said the act had made any difference.

More encouraging was the finding that only 10% reported being ambushed, one of contractors' big early fears. Nor is there any evidence of concerted actions by a group of specialists – most claimants were acting alone.