Adjudication to recover fees: Wishing you a speedy recovery

Many consultants still have problems getting paid for their services. Some clients can’t pay; others won’t pay. And others raise issues of professional negligence. We all want to avoid taking any formal action against clients as the chances of repeat business generally disappear if we do, but sometimes such action cannot be avoided.

Most consultants involved in construction works are aware that the Construction Act applies to the contract between the client and the main contractor, or the main contractor and its subcontractors. However, many are unaware that it can also apply to their own professional services contracts. Under section 104 (2), the Construction Act applies to “architectural, design or surveying work” in relation to “construction operations”.

Although some professional services fit neatly within the act’s definition, some are not so obvious. For example, would the preparation of a schedule of dilapidations under a lease fall within the definition if the repair works were subsequently undertaken? The courts have provided limited guidance on what professional services are caught by the definition, although in the Scottish case of Gillies Ramsay Diamond vs PJW Enterprises, contract administration was found to be caught. In Fencegate vs James R Knowles the giving of factual evidence in an arbitration by an architect, designer or surveyor was found to be outside the definition. Consultants should seek advice if they are in any doubt as to whether the Construction Act applies to their services.

However, even if the consultant’s services are caught by the definition, the consultant may still fail to pass the “no contract in writing” hurdle, because until the proposed amendments to the act are enacted all the agreed terms of the consultant’s contract need to be in writing.

Assuming they are, what sort of disputes are suitable for reference to adjudication? I can hear all the lawyers among you chanting those familiar lines “not professional negligence, not professional negligence…”. This article is not the place to discuss the merits of those arguments (the inability to claim a contribution from another party, limitation periods, and so on), but in any event, if an allegation of professional negligence is raised, then the consultant’s professional indemnity insurer is likely to be calling the shots.

The courts have provided limited guidance on what professional services are caught by the act

However, if the client has not raised allegations of professional negligence and has simply not paid, the consultant could pull the subcontractors’ favourite trick out of the hat and hit the client with its failure to issue a withholding notice. The payment provisions of the Construction Act also apply to consultants’ contracts which fall under the act, so the client must therefore issue an effective withholding notice if it wants to withhold payment.

The consultant should also be able to prevent the adjudicator considering abatement if the notice of adjudication is worded narrowly enough, and even if the client is able to raise abatement, it should still not be permitted to make set-offs. For example, consider a consultant acting as contract administrator: in the absence of an effective withholding notice, the client should not be able to set-off for losses it alleges it has incurred as a result of a claim from the contractor for the late issue of instructions. The client could bring a second adjudication in regard to the set-off, but it would still have to comply with the decision made in the prior one.

Even if the client has not raised professional negligence issues, I would still recommend that a consultant seek advice from its PI insurers before commencing adjudication. This may even be a condition precedent to the insurance cover continuing.

To summarise, then, I do think that adjudication could provide a way of recovering consultants’ fees, particularly in disputes where the client is not alleging professional negligence and no withholding notice has been issued. Such scenarios may only arise in limited circumstances, but consultants should understand the full range of tools at their disposal for the recovery of their fees – if they do not, they might just become another victim of the credit crunch.