Pay now, argue later

There are a number of reasons why disputes often arise in the construction industry, and not enough space to go into them here. Historically, the UK construction industry was renowned for lengthy payment times, which was a problem that often undermined the viability of many otherwise efficient and well-run businesses.

In 1998, The Housing Grants and Regeneration Act 1996 became UK law and established the statutory right for a party to a construction contract to refer a dispute to an adjudicator for a decision. The adjudicator is independent and required to make a reasoned decision within 28 days.

While adjudication was being discussed in the House of Lords, Lord Ackner clarified what it meant: “…a quick, enforceable interim decision which lasted until practical completion when, if not acceptable, it would be subject matter of arbitration or litigation. That was a highly satisfactory process. It came under the rubric of ‘pay now, argue later”’.

First, there must be a written construction contract as defined by the Act and this includes operations such as M&E services and maintenance – however, work on process plant as defined by the Act is excluded. Second, there must be a dispute.

Once it is clear that you have a dispute, then you can start adjudication by sending a written ‘notice of adjudication’ to the other party. This defines what you want the adjudicator to decide and should identify the parties; include a description of the dispute, how it has arisen and what remedy you want.

Appointing an adjudicator

Engineering services contracts often provide that the adjudicator is appointed by a named Adjudicator Nominating Body (ANB) who will undertake this task for a fee; others include the name of an adjudicator agreed in advance. It is important that the ANB’s panel is likely to possess the skills required to decide your dispute and although CIBSE is not an ANB, other organisations in the sector such as the HCVA and the IMechE are.

Adjudication is an interim procedure and although not intended to achieve final settlement, the majority of decisions are accepted as final or as the basis of a settlement

The next step is for you to send the adjudicator and the other party a referral notice, explaining the dispute, providing a clear statement of your case, supporting evidence and listing the decisions you require the adjudicator to make. The 28 days starts when this is received by the adjudicator.

The adjudicator has to be impartial and avoid unnecessary expense, he should also ensure that each party has a reasonable opportunity to present its case, knows what the case to be answered is and is in possession of the evidence and information that is adduced against it.

The adjudicator must consider all the issues referred to him, but must limit the decision to only the issues which were referred. If the adjudicator has jurisdiction and acted in accordance with natural justice, then there is very little that can be done to avoid complying with the adjudicator’s decision.

The normal mechanism for the enforcement of an adjudicator’s decision is through an application for summary judgment and the courts will enforce it without looking at whether it is correct. However, if the receiving party is insolvent, the courts may refuse to enforce or ask that any sums due are paid into a stakeholder account.

Adjudication is an interim procedure and although it is not intended to achieve final settlement of a dispute, experience shows that of the disputes that have been referred to adjudication in the last seven years, relatively few are referred to arbitration or the courts as the majority are either accepted as final or as the basis of a negotiated settlement.

In March 2005, the DTI published a consultation document following reviews of adjudication in practice and it is clear that adjudication in the UK will not fundamentally alter and will very much remain the pre-eminent mechanism for resolving disputes in the construction industry.

Lord Ackner had great vision when he stated that adjudication was a highly satisfactory process. I wonder if even he would be surprised as to how many parties are paying now, but not arguing later.