The statutory right to adjudication was introduced through the Housing Grants, Construction and Regeneration Act 1996. Its introduction changed construction contracts considerably as parties gained the statutory right to refer any dispute (commonly involving (but not limited to) payment) to adjudication at any time. It is not possible for parties to construction contracts to choose to ‘opt out’ of this process. But what exactly is ‘adjudication’?
Adjudication is a dispute resolution mechanism introduced to enable parties to construction contracts to resolve disputes in a timely and cost-effective manner. Prior to its introduction, parties to construction contracts would often be left with no choice but to commence long and costly court or arbitration proceedings in order to resolve disputes. Adjudication ultimately acts to aid the process of resolving construction disputes, allowing those disputes to be resolved during construction contracts quickly and (relatively) cheaply, whilst still providing the parties with a decision underpinned by legislation. Because of this, adjudication is usually the first port-of-call for parties facing a dispute during a construction project.
In addition to its efficiency in terms of time and cost, one of the key features of adjudication is that disputes can be referred to an adjudicator ‘at any time’, meaning that the referring party can seek a remedy to ease cash-flow whilst the construction project is still underway.
If one party wishes to refer a dispute to adjudication, the time between referral and the adjudicator’s decision will be a maximum of 28 days (unless extensions are agreed between the parties). This means that the referring party can seek a quick interim remedy instead of having to fund costly proceedings, with the latter option often not realistic for smaller construction companies who may be stretched financially – not least by the subject matter of the dispute.
Although adjudication was initially intended to counteract the sometimes devastating impact that disputes have on cash-flow, adjudication has become much more flexible, with the mechanism often used for contractual disputes, delay, defective work and issues of termination and determination. The adjudicator’s decision is however temporarily binding to enable the project to continue until the dispute is finally determined by legal proceedings, arbitration or a settlement agreement. As a result, adjudication is often described as a “pay now, argue later” mechanism.
The party seeking to commence adjudication proceedings should:
- ensure that there is a right to adjudication – ask “does this dispute definitely arise out of the construction contract?”; and
- Check that the dispute between the parties has ‘crystalised’, meaning that the basis for the claim has been clearly presented in writing to the intended respondent before starting the adjudication process.
Once the party is confident that the dispute has arisen out of the construction contract and has effectively ‘crystallised’, a party can commence adjudication proceedings by issuing a Notice of Adjudication and applying to the appropriate nominating body for the appointment of an adjudicator.