Easy does it: low-cost dispute resolution

The 1996 Construction Act is nearly a quarter of a century old. A generation of participants in the UK construction industry are unable to remember a time without a statutory right to refer contract disputes to adjudication. But has adjudication delivered what the 1994 Latham report intended: a quicker and cheaper resolution procedure for construction disputes?

Some say adjudication in the UK has been a huge success, measured by annual referral figures and the number of those working in the field of adjudication. Jurisdictions outside the UK, such as the Republic of Ireland and Ontario, Canada, have adopted a broadly similar process.

Others argue adjudication has become too close to court or arbitration proceedings, with a very legalistic approach and a consequent impact on costs. While the tight deadlines inherent in adjudication may help further the aims of keeping a project’s cash flowing and its programme on track, incurring disproportionate professional fees in respect of intensive preparation to meet those deadlines is not what the Construction Act intended. In particular, commercially astute parties might be deterred from using adjudication where the value of the claim is low compared with the likely adjudication costs, which cannot be recovered unless the parties have agreed that the adjudicator has the jurisdiction to award costs after commencement of the proceedings.

Incurring disproportionate professional fees in respect of intensive preparation to meet the tight deadlines inherent in adjudication is not what the Construction Act intended

In response to this, a number of initiatives have been launched in recent months with the aim of encouraging proportionality in the adjudication process where the sums involved are modest, the purpose being to bring adjudication back to what was originally intended, avoiding unnecessary costs and simplifying procedure.

Since 1 January, the Technology and Construction Solicitors’ Association’s (TeCSA)adjudication offering has included a low-value disputes adjudication service for claims for fixed amounts up to £100,000. The service applies only to claims for a specified sum rather than those where the amount sought has not been quantified or where the claim is for something other than money, such as referrals for declarations as to the meaning of contract terms. The overriding intention is to give referring parties certainty on the costs of the adjudicator, which are capped on a sliding scale. The service limits only the fees the adjudicator can charge so it is not necessary to obtain the agreement of the opposing party to use the service: the referring party can simply apply to TeCSA for the nomination of an adjudicator, provided no other adjudicator-nominating body is specified in the relevant contract.

Now the Construction Industry Council has developed its own low-value dispute model adjudication procedure (LVD MAP), launched on 1 May. It applies to low-value disputes (less than £50,000) where the issues are not complex.

However, for the LVD MAP to apply, the parties must either have agreed in their contracts to refer disputes that meet the relevant criteria to the LVD MAP or have agreed to do so after the dispute arose. It is a separate set of (Construction Act-compliant) rules, meaning they can be used by any nominating body but only if the parties have actively chosen that the rues should apply.

Processes that facilitate prompt resolution with clear time and cost management will be of huge benefit to parties either referring or responding to simple, lower-value disputes

The LVD MAP is supported by 10 adjudicator nominating bodies, including the RICS, which also launched a 14-day adjudication service on 21 April to help construction companies free up cash flow in a very short timeframe. The service is available for disputes valued at £20,000 or less and where the issue is clear-cut and uncomplicated by legal/technical questions for the adjudicator to deal with. This service will apply if the referring party has applied for the matter to be dealt with under the procedure and (i) the adjudicator considers the dispute suitable for determination under the procedure, and (ii) no reasonable objection is made by the responding party to use of the procedure. The adjudicator’s fee is capped at £1,000, and the decision is given in summary form with just the outline reasons set out.

When parties are in the mindset to resolve disputes as efficiently as possible, statutory adjudication works well. For complicated and high-value disputes that necessitate technical and legal experts, it will be important the adjudicator is able to manage what can be a tight timetable, even if it might be longer than anticipated by the Construction Act. Management of the dispute may resemble arbitration or court proceedings and the costs can be considerable. However, at the other end of the scale, processes that facilitate prompt resolution with clear time and cost management will be of huge benefit to parties either referring or responding to simple, lower-value disputes. For this kind of dispute, the recent initiatives seem eminently sensible. It will be hugely helpful to be able to understand the full costs risk of adjudicator’s fees before the process is started so parties can account with greater certainty for the commercial consequences of a “loss” as well as a “win”. In the present economic circumstances, with many parties perhaps facing insolvency on projects in serious delay, the industry needs options that can resolve disputes as quickly and cost-effectively as possible.

Stephanie Canham is national head of projects and construction at Trowers & Hamlins