What is adjudication?

Adjudication is an adversarial dispute resolution process. It is implied by law into most UK construction contracts (although there are exceptions) and provides a quick process for resolving disputes by referring them to an independent third party adjudicator to give a decision. That decision is binding until a final decision is made by a court or arbitrator. It is generally the cheapest form of formal adversarial dispute resolution available.

How long does adjudication take and what is a typical adjudication timetable?

In order to begin an adjudication there must be a clear (or ‘crystallised’) dispute. In short this means that one party must put its position and the other either expressly rejects it or sufficient time passes that rejection can be inferred. The adjudication is started by a Notice of Adjudication being given. An Adjudicator must be appointed and a Referral (which sets out all of the arguments and includes the relevant documents) must be made within 7 days of the Notice, then the Adjudicator has a further 28 days from the Referral to make a decision. In that time there will usually be further submissions by the parties to a timetable set by the Adjudicator. The 28 days can be extended by up to 14 days by the party referring (bringing) the dispute, or by any length of time by agreement of both parties, and in practice the adjudication timetable is often extended.

What happens if the other party does not pay an adjudicator’s decision?

The result of an adjudication is binding. If a party refuses to comply with a decision they can be taken to court where it will be enforced (as long as the Decision was properly made) by means of a court order for summary judgment. The enforcement process takes place much more quickly than ‘normal’ court proceedings. There are only very limited grounds on which enforcement can be resisted and the vast majority of decisions are enforced. The court generally does not look at whether an adjudicator’s decision is right or wrong, so will enforce a decision unless the adjudicator did not have power (jurisdiction) to make it or there was some breach of the relevant rules.

Can an adjudicator’s decision be appealed?

The result of an adjudication is binding, but it can be re-decided by a court or arbitrator if one party wishes. If that happens, then the entire dispute is decided again from the very beginning. This is expensive and time-consuming and rarely occurs.

What is arbitration?

Arbitration is a form of adversarial dispute resolution that is an alternative to court proceedings. It must be agreed by the parties either in the contract itself or at a later stage. Where there is an agreement to Arbitrate, court proceedings can only be started in limited circumstances. Much like Adjudication there must be a clear dispute to be arbitrated upon. Arbitration is more like court proceedings than Adjudication; it is a more formal process, takes longer and costs more than Adjudication. It does however provide a result that not only is binding and enforceable but also can only be challenged on very limited grounds and, unlike Adjudicators, Arbitrators can decide that parties must pay each other’s own costs.

When and how can we suspend works for non-payment?

The grounds for suspension of all or part of your works for non payment are very limited. You may only do so if a payment notice or a pay less notice under the contract has not been paid. In some instances your application for payment may be a payment notice, but this will only generally be where the contract permits or requires you to issue an application and where the paying party has not themselves issued a notice.

You cannot suspend just because you disagree with the amount in the other party’s notice or there is a big difference between what you have applied for and what is in their notice – if they have paid the amount in the notice there is no entitlement to suspend.

In order to suspend you must usually provide a notice of intention to suspend giving the paying party 7 days to remedy the default. If they then fail to do so then you may issue a suspension notice and lawfully suspend your works. You must be very careful when issuing such notices. Failing to follow this procedure or suspending when you are not entitled to could lead to you being in breach, the other party terminating the contract and you being liable for significant damages.

Can monies owed on one job be set-off against those owed on other jobs?

As a general rule, no, monies owed on one job cannot be set-off against those owed on other jobs unless the contract against which the money is to be deducted allows for it. This is because there is no common law right of set off between contracts so it generally only applies where the contract specifically provides for such set-offs, otherwise there are only very limited circumstances in which this can be done.

What is practical completion and when does practical completion occur?

This has been the subject of recent litigation and is a poorly developed part of the law. The courts have repeatedly described practical completion as easier to recognise than define. Practical completion is a factual state of affairs. In short it is when the works are complete except for trifling defects and/or outstanding works. What is a trifling defect/item of outstanding work is a question of fact and degree and is considered objectively. Practical completion is also subject to whatever the contract says about what must be achieved in order for practical completion to be granted.

How do I claim extensions of time?

This is entirely dependent upon what the contract says. Contracts tend to have their own procedures for claiming extensions of time and often they must be followed strictly or you will lose your rights. Most of those procedures require you to give notice to the person who can grant you an extension of time as soon as you are aware you are delayed or are likely to be delayed. Notices are often required to set out the cause of the delay, whether that cause is a relevant contract event, how long you have been or are likely to be delayed and you will usually be required to provide evidence of the delay. If you do not give notices to the right persons at the right time and containing the right detail, you may lose the right to extension of time.

How do I claim loss and expense?

Again this is entirely dependent upon what the contract says. Contracts tend to have their own procedures for claiming loss and expense (if they have one at all) and often they must be followed strictly or you will lose your rights. Most of those procedures require you to give notice to the person who can grant you loss and expense as soon as you are aware you have incurred or are likely to incur loss and expense. That notice should set out: the cause of the loss and expense, whether that cause is a relevant matter, and you will usually be required to give details of the amount of loss and expense claimed and provide evidence of the loss and expense. Loss and expense should also be claimed in your applications for payment. If you do not give notices to the right persons at the right time and containing the right detail, you may lose the right to loss and expense.

What is an early warning notice and what goes in one?

Again this depends on what is in the contract. Contracts tend to have their own procedures for early warning notices, if they provide for them at all. They are features of the NEC Contract and designed to encourage good management and reduction of risk. In the Main Contract, early warning notices are to be given by the contractor or project manager when either becomes aware of any matter that could:

•increase the total of the Prices,

•delay Completion,

•delay meeting a key date, or

•impair the performance of the works in use.

Often an early warning will be followed by a risk reduction meeting to attempt to mitigate the effects of any of the foregoing.

NEC contracts generally provide that if you do not give an early warning notice when you should have then your entitlement to extra time or additional money will be assessed as if early warning had been given. In other words, as if the other party had been given the opportunity to mitigate the additional time and money.

What is a compensation event and what goes in one?

Compensation Events are features of the NEC suite of contracts and what qualifies as a compensation event will vary depending on the specific terms of the contract you are working under. Compensation events are variation, extension of time and loss and expense claims wrapped up in one. It is vital to submit compensation event notices as and when required by your NEC contract, otherwise you will lose your rights to additional time and money.

I haven’t submitted any notices – can I still claim additional time and money?

What notices are required and when varies from contract to contract so it will very much depend on what your contract says about notices. Generally speaking if you have not given the notices it will be more difficult to get an extension of time and get paid additional money. The starting point will often be to see whether any other communications such as emails, letters or RFI’s can be construed as a notice.

It is important that you get advice immediately, so please get in touch!

Can work be omitted from my scope and given to someone else?

This is entirely dependent upon what the contract says. The starting point is that no, this would be a breach of the contract and entitle you to damages. However many contracts contain specific clauses which allow work to be omitted in this way, so check the contract and see what it says.

Can we refuse to carry out instructions or variations?

This is entirely dependent upon what the contract says. Generally speaking the right to refuse to carry out instructions is very limited and refusing without the right to do so will mean that you are in breach of contract. In JCT contracts it is usually confined to instructions that amount to variations where you may be able to raise a reasonable objection. Then you need not comply to the extent that you have provided a reasonable objection. There are some other circumstances in which instructions can be refused, but they require careful consideration of the facts.

Who is entitled to give us instructions?

This should be set out in the contract. It is very much dependent on the type or nature of the contract you are working under and it could be a variety of different people. Failing to do instructed work can lead to that work being carried out by someone else and you having to pick up the cost. Carrying out work without instructions is also not advised as you may not be paid for any work you have carried out and, even worse, may be required to put the work back as it was in the original scope, without payment or entitlement to additional time.

Our client is saying we won’t be paid until they’ve been paid; can they do that?

In general terms no. Pay when paid clauses are usually unlawful. There are certain exceptions to this general rule, usually where there has been an insolvency.

What does ‘without prejudice’ mean?

In brief, ’without prejudice’ means that the communication in question cannot be shown to a court or tribunal, it is privileged. ‘Without prejudice save as to costs’ means that it can not be shown to a court or tribunal until the subject of costs comes to be considered. This is a specific type of legal privilege that generally only attaches to genuine attempts to reach a compromise in relation to a dispute. In order to be considered ‘without prejudice’ correspondence must therefore contain or be some sort of attempt to negotiate the dispute. A restating of your case under the words ‘without prejudice’ would not be sufficient for example.