6 January 2009 01:37

The Construction Act Consultation - Proposed changes to the adjudication procedure.

In the 2nd Consultation paper there is the suggestion that the requirement that the adjudication provisions which currently only apply to construction contracts which are in writing should be removed. 

All those in the construction industry know that construction contracts are more often than not only signed once the project has been finished or may not ever be signed, and in many instances are varied by way of oral agreement. 

Many disputes that come before an adjudicator require the adjudicator to decide terms of the contract.  This has led to jurisdictional challenges in the courts by the losing party when the winning party seeks to enforce that decision. This has led to the judges in the Technology & Construction Court having to decide exactly what the contract was and what its terms actually were.  This therefore leads to an increase in the costs incurred by the parties.

The proposal is therefore to remove the restriction that the Construction Act only applies to contracts in writing.  The effect of this will be that the Act will apply to construction contracts which have been agreed wholly in writing, partly in writing, entirely orally or varied by oral agreement.  However certain important contractual provisions required by the Act such as those relating to the contractual adjudication scheme will have to be in writing.  If they are not in writing then the relevant provisions of the Scheme will apply.  The Government envisages that construction contracts will be recorded in writing for the most part as this makes firm business sense.  Apparently research has shown that there are approximately 1750 adjudications each year.  On average of 40% of those contain challenges to the adjudicator’s decision and, often lead to enforcement proceedings being issued in the TCC court.

A further area which has proved to be problematical is a clause often found in standard contracts that an interim or stage payment is to be considered conclusive.  This type of clause has restricted the ability of parties to adjudicate especially as paragraph 20(a) of the Scheme provides that an adjudicator may not open up revise or review any decision or certificate if the contract states that the decision or certificate is final or conclusive.

The Government is therefore proposing that such clauses will not be effective (save for those relating to final payments) and that an adjudicator can review such certificates.

The final area which the Government is looking at relates to the costs of bringing an adjudication.

It is known that some parties are reluctant to issue adjudication proceedings especially if the terms of their contract require the loser to pay all of the costs of the adjudication or even that the referring party pays all of the costs of the adjudication whether he wins or loses. (The Tolent clause).

The proposal suggested by the Government is to include a new provision so that the following agreements are only valid if made in writing and made after the appointment of an adjudicator namely:-

Agreements that a party should pay the whole or part of the cost of the adjudication including legal and other costs as well as the fees and expenses of the adjudicator

And

Agreements that the adjudicator may make a decision that a party should pay the whole or part of the costs of the adjudication

Where the parties have made a valid agreement (as above) unless they have agreed what costs of the adjudication will be recoverable, the adjudicator will be required to award only a reasonable amount in respect of costs reasonably incurred by the parties, and such reasonable amount as the adjudicator shall determine by way of fees for work reasonably undertaken and expenses reasonably incurred. This therefore bans the use of Tolent clauses in the contract.

The Government also proposes that the parties will share liability for the adjudicator’s fees and expenses which will ensure that he can obtain payment of these and also he will not then have to require the parties to sign an adjudication agreement on his appointment in order to secure payment of his fees and expenses.

The responses to this consultation will be watched with great eagerness from the profession and it is to be hoped that they will be published promptly after the consultation period has expired.

Sarah Shemmings

September 2007

 

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