REUTERS | Heinz-Peter Bader

Contractual adjudication using the Scheme for Construction Contracts

If you are carrying out works that are partly “construction operations” under the Construction Act 1996, and partly not, conventional wisdom has often said that it makes sense to ensure that your dispute resolution clauses and payment terms comply with the Act.

While this was accepted as good practice, it remained unclear exactly how the court would deal with the enforcement of an adjudicator’s decision relating to works that were not construction operations, but where the parties nevertheless had a clear intention in their contract that adjudication should be available. That is, how might the courts use the Act and the Scheme for Construction Contracts 1998 when enforcing a contractual adjudication. Thanks to HHJ Havelock-Allan QC, we now have at least part of the answer.

RWE Npower Plc v Alstom Power Ltd

In RWE Npower Plc v Alstom Power Ltd, the TCC considered an engineering contract for boiler maintenance at a power plant, which was not a “construction contract” under the Construction Act 1996. (It did not relate to “construction operations”.) However, the parties adopted adjudication as a method of dispute resolution and incorporated the Scheme for Construction Contracts 1998 into their contract.

When the contractor won an adjudication, the employer tried to set-off the adjudicator’s award against liquidated damages (LDs) for delay. The dispute referred to adjudication did not relate to the timing of the works, so, if this had been a construction contract, the authorities tell us that the employer could not exercise that set off.

However, here, the court had to decide whether the fact that this was not a construction contract made any difference. Could the employer use a separate term of the contract to set-off the LDs against the adjudicator’s award?

On the facts before it, the court said no. The parties knew what they were doing when they had incorporated the Scheme into their contract. By incorporating the Scheme, they also incorporated the statutory regime and the Parliamentary intent that went with the Scheme. In other words, that an adjudicator’s decision should be honoured on a “pay now, argue later” basis.

The TCC must be right

The court’s approach must be right. Unless the parties had incorporated the Scheme on express terms that made it subject to a contractual right of set-off, then the most straightforward interpretation of what the parties intended is that they wanted to adopt the Scheme, and its intent, lock, stock and barrel.

In contrast, if the parties had not incorporated the Scheme, but had written into the contract their own contractual adjudication clauses, whether or not those clauses were based on the Scheme, arguably the court would have had to interpret the contract on the basis of the words before it alone. Without the incorporation of the Scheme, there would be no basis to incorporate Parliamentary intention and the whole of the “pay now, argue later” approach.

Guidance for practitioners

It’s easy to say “draft your contracts with care”, but this is yet another complexity to add to the mix when preparing bespoke construction and engineering contracts. If you want to use contractual adjudication, it seems you have a choice. You can:

  • Adopt the Scheme and all that all that goes with it; or
  • Draft a bespoke adjudication clause that does not refer to or rely on the Construction Act 1996 or the Scheme.

If you wish to retain a right to set-off against an adjudicator’s decision, use the second option, and cross-refer between the adjudication clause and the right to set-off.

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