When RICS published the third edition of its guidance note, Surveyors acting as adjudicators in the construction industry, it was Jonathan who told you all about the changes. Therefore, it is only fair that I take a turn and look at the consultation draft for the fourth edition, highlighting some of the proposed changes from the third edition.
What is the guidance
I appreciate that not all of you will know what the guidance I’m referring to is, so a quick recap on the documents that RICS’ produces.
RICS produces a number of documents that its members have to take notice of. Practice statements are at the top of the list, followed by codes of practice, guidance notes and then information papers. As the ranking suggests, the status of the documents decreases in importance as you go down the list. The first two are mandatory. Following guidance notes is, in RICS’ language, “recommended good practice”. This “recommended good practice” doesn’t have to be followed but if an individual doesn’t do so and an allegation of professional negligence is made, the contents of the guidance note may be taken into account when deciding if the individual “acted with reasonable competence”. Conforming to the practice set out in the guidance note should provide the individual with at least a partial defence to any negligence allegation. RICS also suggests that good reasons are required not to follow the guidance in one of its guidance notes. This may be particularly important if an individual is questioned in a disciplinary case, when that individual may be required to explain why they did what they did, and didn’t do what is set out in the guidance note.
It’s shorter and more concise
I understand that, in an effort to make the guidance note more readable, the fourth edition has about 4,000 less words than the third edition. This is because the working group responsible for the fourth draft acknowledges that there are now a number of well-respected and detailed books on the subject of construction adjudication. The guidance note is not seeking to replicate or compete with any of these books but, rather, it aims to provide a short guide for adjudicators and parties on the key areas.
A large portion of the 4,000 omitted words relate to the changes that were introduced in 2011. Consequently a pruning job has been carried out on a number of sections, including 1.4.1.
Limited to post-1 October 2011 contracts
Section 1.1 explains that the guidance has been limited to construction contracts entered into after 1 October 2011, when the amendments to the Construction Act 1996 and the Scheme for Construction Contracts 1998 came into force. Anyone with a construction contract that pre-dates this should still refer to the third edition of the guidance note.
Section 1.1 also clarifies that the guidance note applies to contracts that are not “construction contracts”, but where the parties have agreed a contractual mechanism to enable them to adjudicate disputes. The classic example here is a residential occupier using a standard form contract (like the JCT’s Minor Works Building Contract), but we still also have that list of disparate exceptions in section 105.
Principles of adjudication
There is a new section 1.2 detailing what the principles of adjudication are (these were in section 1.3), noting that it is a quasi-judicial process with an adjudicator making a statement of the parties’ rights and obligations in a decision.
Section 1.3 deals with the adjudicator. It has been amended to make it clear that when an adjudicator accepts an appointment (either by the parties direct or through RICS), the adjudicator is “declaring” that they have the competence and ability to deal with the dispute (previously the adjudicator was “holding themselves out” as this). I’m not sure what the difference will be, in practice.
Appointment and acceptance
Section 2 deals with the appointment process, including an application to RICS and an appointment directly by the parties. It has been subjected to a thorough re-write. One notable addition relates to the adjudicator advising the parties “immediately” that the referral has been received (section 2.1.3), which reflects an amendment to the Scheme for Construction Contracts 1998 and also what most adjudicators probably do in practice.
Conflicts of interest and bias
Another notable addition to section 2 relates to dealing with conflicts of interest, whether “real or perceived” at the nomination stage (section 2.1.4). It seems that RICS is taking a hard line and is trying to eliminate some of the issues that have arisen in recent case law. Prospective adjudicators should:
“…disclose every matter which could potentially lead a fair minded and informed observer to conclude that there was a real possibility that they are biased… If there is any doubt as to whether an involvement with a property, party or representative of a party might give rise to a conflict of interest, RICS expects it to be disclosed both to RICS and to the parties if the prospective adjudicator is thereafter nominated.”
Prospective adjudicators should take note:
“If the prospective adjudicator wilfully fails to disclose a conflict of interest, RICS may conclude that they are not suitable for future nomination.”
The obligation to disclose conflicts of interest does not end at the nomination stage:
“… if a potential conflict of interest arises after the prospective adjudicator has been nominated they should inform the parties immediately.”
Nor does it mean that disclosing something will prevent RICS from appointing the individual as the adjudicator. That all depends on what involvement is disclosed by the prospective adjudicator and any representations from the parties. It all comes down to whether a “fair minded and informed observer would consider there to be a real possibility of bias” and that will always be fact-specific.
RICS applies an objective test to conflicts of interest and refers to the guidance set out in its guidance note, Conflicts of Interest. It also states that adjudicators need to be familiar with case law on conflicts of interest and bias.
Terms and conditions of the adjudicator’s appointment
Section 2.1.7 now succinctly addresses what the adjudicator should do once nominated. Essentially it involves reminding adjudicators to send out terms and conditions of engagement and suggesting that they do not get “embroiled in arguments” over those terms. As we all know, following Linnett v Halliwells and Fenice v Jerram Falkus, adjudicators are entitled to a reasonable fee for the work done, even if those terms and conditions are not signed or even agreed by one or both parties.
Legal or technical advice
Section 3.1.4 reminds adjudicators that they can take legal or technical advice from a third party. It is recommended that adjudicators inform the parties that they intend to do this, before they do it, and give details of the third party to them in case the parties have “legitimate objections” to their appointment. This may avoid a potential conflict of interest that the third party may have.
Parties’ intimidatory tactics
Section 3.5.3 addresses parties’ intimidatory tactics, which are designed to place “undue pressure” on the adjudicator. The section now gives examples of what this may be, including delaying tactics and:
“… casting doubt on the adjudicator’s credibility, integrity, impartiality and/or competence.”
According to the guidance note, the adjudicator should deal with these tactics “robustly, yet politely and calmly”. I like the bit where it says that the adjudicator should avoid “getting into petty email exchanges which may exacerbate the problem”.
Section 3.6.3 is a new section that deals with the adjudicator deciding the issues in dispute. RICS notes that adjudicators will have their own way of doing this (it calls it “their own particular process”), but I guess it is important to provide some guidance given the importance of the task.
Section 3.6.6 addresses the current uncertainty concerning the meaning of section 108A of the Construction Act 1996 and whether it should be given a wide or narrow interpretation. This is something Jonathan and others looked at a few years ago (see The “great” section 108A debate – part 1 and part 2, and The “not so great” section 108A debate). RICS considers that the narrow interpretation is correct, but acknowledges that this hasn’t been tested in the courts to date.
The section also reminds parties of their right, in certain circumstances, to claim interest under the Late Payment of Commercial Debts (Interest) Act 1998 and to be paid the reasonable costs of recovering the debt (following the Late Payment of Commercial Debts Regulations 2013 (SI 2013/395)). The guidance notes the potential conflict with section 108A of the Construction Act 1996 and highlights that this point hasn’t been tested by the courts. Again, this is a topic that Jonathan has looked at recently (in Parts 1 and Part 2), and I’ll leave you with his thoughts on the topic.
The consultation on the draft guidance is open until 21 October 2016. I’m sure RICS would love to hear from you!