Practical Law

As far as I’m aware, during the years of debate over amendments to the Construction Act 1996, when it came to costs, the focus of most peoples’ attention was on getting rid of contract clauses requiring the referring party to pay both parties’ costs (so-called Tolent clauses). I don’t really recall that much time devoted to what some practitioners now regard as a significant problem, namely the level of costs incurred by the adjudicator and the parties to an adjudication.

What is the issue about adjudicators’ fees?

In recent years, practitioners have started to express their concerns over how much it costs to adjudicate and whether this prices some parties out of the adjudication market entirely. Some wonder whether there are claims that are too small for adjudication, because of the costs, and whether the entry level to adjudicate is realistically around £10,000 or even £20,000 before the process can be said to be worthwhile or cost effective. Equally, at the other end of the scale, anecdotally, we hear about adjudications with tens of millions of pounds at stake, which last months and months (even years), and where each parties’ legal bill runs into hundreds of thousands of pounds. We even hear about adjudicator’s fees in these terms, with bills as high as £250,000 being discussed in adjudicator-circles.

Adjudication Society panel debate

All of this concern has led to attention being focused on how much the adjudicator charges and how his fees are presented to the parties. It was the topic under discussion at last week’s Adjudication Society panel debate, Adjudicator’s fees and the costs of adjudication – over the top?.

The evening was chaired by Chris Ennis of Davis Langdon LLP and I sat on the panel, alongside David Savage of Charles Russell LLP and Peter Phillippo of The Tudor Rose Partnership LLP. Issues under discussion included:

• Adjudicators fees hourly rates – too high or about right?
• What factors should adjudicators consider when determining liability for their fees and expenses?
• What can adjudicators do to manage the process and keep costs down?
• How can the parties reduce the costs of the procedure?
• Is there no place in adjudication anymore for sub-£10,000 disputes? Should there be?
• Should adjudicators’ fees be capped?
• Where adjudications go over 28 days who is driving the extension – the adjudicator or the party representatives? Is the extension always necessary?
• Is adjudication being brought into disrepute by a number of relatively high profile and possibly unrepresentative cases?
• Should adjudicators update the parties on the level of fees being incurred, including an estimate once all submissions have been received but before the decision is drafted? Alternatively, is it ok that they only find out with the issue of the decision, when they receive an invoice?
• How does an adjudicator carry out a cost assessment in adjudications with cost recovery?

This is a long and varied list and there isn’t room to address all of the issues today. Instead, I’ll just focus on how the adjudicator and the parties can manage the process to keep costs down. I’ll leave other issues, such as the perceived lack of regulation and accountability of adjudicators, and challenging the reasonableness of the adjudicator’s overall fee, for another day.

Managing the process – it depends on the parties

It is fair to say that the adjudicator is constrained by the parties and how they choose to behave. If the parties prepare submissions that are lengthy, poorly cross-referenced and come complete with the proverbial “kitchen sink” of documents (that look like they’ve been thrown in the sink and then shoved randomly in folders), the adjudicator (and the parties) will spend more time on the dispute than if the submissions are orderly, properly cross-referenced and only attach the necessary paperwork (prepared in a neat and orderly fashion).

It is easy for detractors to say that the adjudicator needs to be proactive and get on top of the process at the outset, but to some extent, he can only do this once he has received the parties’ submissions. The adjudicator may be able to take the initiative, to decide that “enough is enough”, to call a close to excessive submissions, and prohibit the service of a rejoinder and surrejoinder, but the referral and the response are often where the problem starts.

In my view, parties should take note of this. For example, it is in their interest to:

• Prepare a properly cross-referenced referral, with only the relevant documents attached (in a neat and orderly fashion).
• Ensure the response responds to all the issues in the referral, (if appropriate) paragraph by paragraph, whether to agree or reject them. Also, if applicable, to ensure any counterclaim or positive defence is clearly set out. While it may be inappropriate to expect the parties to follow the Civil Procedure Rules (CPR) on pleadings, as most parties have legal representation these days, I see no reason why the parties can’t follow those principles, in spirit at least.
• Consider using a properly prepared Scott Schedule if that helps. I recently had eight different documents to look at for each variation being claimed as a result of the Scott Schedule not including all of the parties’ submissions on each variation. That is not a good use of anyone’s time and undoubtedly resulted in a higher fee. In hindsight, perhaps I should have directed the parties to update and/or revise the Scott Schedule.
• Not complain unnecessarily about the cost of meetings with the adjudicator. The whole purpose is to enable the adjudicator to better case-manage the dispute. If the parties have well-prepared submissions, I often find a meeting is unnecessary. I accept a relevant factor in deciding to have a meeting is the size of the dispute. However, it is sometimes quicker and more cost effective to iron out issues when everyone is in the same room.
• Ensure they have good representation. Remember the adage “you get what you pay for”. On that note, it is often the case that a higher hourly rate reflects experience and the fact that the individual will spend less time on a matter than a less experienced individual with a lower hourly rate. Incidentally, the same principle applies equally to adjudicators.

What does RICS propose?

Some of you may have seen the RICS’ draft guidance for surveyors acting as adjudicators. While it is still out for consultation, it contains advice on case management. It is difficult to say how much of the draft will make it into the final guidance, but items of note include:

• Subject to any specific requirements in the contract or adjudication rules, adjudicators have “complete discretion as to the procedure that is adopted” (paragraph 10.1).
• Adjudicators need to manage time effectively, as they only have 28 days (paragraph 10.2).
• It is for adjudicators to “decide the best way to establish the facts and the law” (paragraph 11.1).
• The adjudicator may limit written submissions and may request a Scott Schedule to deal with responses to assertions (paragraph 11.3). However, limiting submissions could put the adjudicator in breach of the rules of natural justice, so he must have good grounds for such refusal, such as efficient case management (paragraph 11.7).
• Adjudicators should “fit the procedure to the dispute and not the dispute to their customary procedure” so, for example, they shouldn’t allow a reply as a matter of course (paragraph 11.6).
• In an ambush situation, especially when there is an unmanageable amount of documents, the adjudicator should take note of the scope of his powers (as set out in paragraph 13 of the Scheme for Construction Contracts 1998) and should manage the process from the outset, including setting a final date for submissions. He should also carefully consider the need for an extension of time (paragraph 12.5).

As I see it, much of the draft guidance reiterates good practice, although it is arguably a little woolly in places and could be more direct. It is also debatable whether following the guidance would reduce the amount of time an adjudicator spends on a dispute.

As an aside, the draft guidance suggests adjudicators should be “careful to act judicially”, giving each party an opportunity to put their case and respond to the other’s case, without unfairness (paragraph 9.1). I would add that this recognises the fact that we are under considerably more time constraints than judges!