Adjudication is a procedure for resolving disputes without resorting to lengthy and expensive court procedure. For the purposes of this guide, adjudication is a reference to the procedure introduced in the UK in 1996 by the Housing Grants, Construction and Regeneration Act (Construction Act).
Originally the intention of the Construction Act was that the process would be fairly informal. However, it has developed into a formal process with parties serving detailed submissions, witness statements and often even expert reports.
The adjudication process begins when the party referring the dispute to adjudication gives written notice of its intention to do so. The Scheme for Construction Contracts provides that this Notice of Adjudication should briefly set out the following:
- a description of the nature of the dispute and the parties involved;
- details of where and when the dispute arose;
- the nature of the remedy being sought;
- names and addresses of the parties to the contract, including addresses where documents may be served.
The Notice of Adjudication is the first formal step in the adjudication procedure. Save for the minimum information set out above, there is no particular requirement as to the form of the document.
Appointment of the adjudicator
Following service of the Notice of Adjudication, the next step is to appoint an adjudicator. The appointment of an adjudicator must be secured within seven days from service of the Notice of Adjudication. The parties can agree on an individual to act as the adjudicator or, if agreement cannot be reached, the party who referred the dispute to adjudication may make an application to an Adjudicator Nominating Body (ANB). This is usually done by completing a form and paying the required fee. On receipt of a request to nominate an adjudicator, the ANB should communicate their selection to the party who referred the dispute to adjudication within five days of the request. In the event that an ANB fails to do this the whole process must begin again.
The referral notice
The referral notice must be served within seven days of service of the Notice of Adjudication. This is the document that sets out in detail the case of the party who is referring the dispute to adjudication and it should be accompanied by documentation in support of the claim together with expert reports (if any) and witness statements. It is important to ensure that the referring party is in a position to serve this notice - there have been instances where the ANB has appointed an adjudicator 24 hours before the seven-day period expires, in which case the adjudicator will need the notice within a day. A copy should be sent to the other party at the same time.
The Construction Act sets out a tight timetable of within 28 days of service of the referral notice for submission of a response and for the adjudicator's ultimate decision. However this may be extended with the consent of the adjudicator. The rationale behind the process was to obtain quick and cost effective results which are of a binding nature unless reviewed by litigation or arbitration. This relies on timescales being tight.
Responding party's response
This is essentially the other party's defence, and is required to be served within seven days of the Referral Notice. Requests for this to be extended to 14 days are usually agreed. The HGCRA does not demand a response or further submissions - the need for one is a matter for the adjudicator.
The adjudicator is required to reach his decision within 28 days of service of the referral notice. This period can be extended by a further 14 days if the party who referred the dispute in the first place agrees, or can be further extended if both parties agree.
The decision is final and binding, providing it is not challenged by subsequent arbitration or litigation. The parties are obliged to comply with the decision of the adjudicator, even if they intend to pursue court or arbitration proceedings. In the majority of adjudicators' decisions the parties accept the decision, however if they choose to pursue subsequent proceedings the dispute will be heard afresh - not as an 'appeal' of the adjudicator's findings. A party cannot adjudicate the same issue in further adjudication proceedings.
The Construction Act makes no mention of how costs should be dealt with. However changes to the Act which come into force on 1 October 2011 provide that any contractual provision which attempts to allocate the costs of an adjudication between the parties will be invalid unless it is made after the adjudicator is appointed. This applies to agreements both as to the allocation of the adjudicator's fees and expenses and agreements as to who is to bear the parties' own costs.
This provision seeks to prevent parties agreeing contractual terms which place all the costs risk on one party.
Adjudicator's fees and expenses
The parties will be jointly and severally liable to pay the adjudicator a reasonable amount in respect of fees for work reasonably undertaken and expenses reasonably incurred by him. This means that both parties can be pursued for these fees, or that either party may be pursued for the whole amount. The adjudicator may decide himself what sum is reasonable but, if there is any dispute, an application can be made to the court for determination. This provision applies only to adjudications which contain the required adjudication provisions set out in the Construction Act, not to adjudications which rely on the provisions of the Scheme for Construction Contracts.
The Local Democracy, Economic Development and Construction Act provides that:
- the parties may agree, in the construction contract, to confer power on the adjudicator to allocate his fees and expenses between them - this agreement must be in writing;
- if the parties agree, in the construction contract, to allocate liability for their own costs of the adjudication that provision will be ineffective;
- the parties are free to agree liability for their own costs of the adjudication after the notice of intention to refer has been given - if they do so, this agreement must be in writing.
The Act does not address what will happen if a contract provision allocates liability for both the parties' costs and the adjudicator's fees and expenses. It is arguable that in such a situation the whole clause will be ineffective.
The adjudicator can only deal with interest on sums awarded if the contract contains a provision dealing with interest, or alternatively if the parties agree.