Practical Law

It was Cher who sang “If I could turn back time“, and that song came to mind when I was reading the latest adjudication survey results by Construction Dispute Resolution, in conjunction with the Adjudication Society.

You may wonder why I’d think of that song, and it is because I was thinking about how construction adjudication in 2016 is very much like how I remember domestic construction arbitration was in 1996, albeit with a wider audience and greater level of industry participation (and it is a fair bit quicker).

Adjudication survey

The latest adjudication report covers the three-year period, May 2012 to April 2015 (described as years 15, 16 and 17). It looks at the number of adjudication nominations and is based on questionnaires that were completed by ANBs and a sample of adjudicators.

There is a table of referrals at the start of the report. One of the first things I noticed was how the number of referrals has changed over the 17 years since the Construction Act 1996 came into force. I cannot discern a clear pattern (just like I cannot predict the weather). Some years the numbers are up (for example, years 4 and 5 had over 2,000 referrals), while other years the numbers are down (both years 13 and 14 only just crept over 1,050 referrals). In the last three years (15, 16 and 17), the numbers have increased considerably from previous years, which shows an upwards trend. The report suggests that:

• Year 16 may have shown an increase as the industry recovered from the recession.
• Year 17 reflects the “phenomenon” of smash and grab adjudications.
• Year 18 (which ended last month) is likely to see around 1,400 referrals.

I’m not sure how the recession and the construction industry’s apparent recovery has impacted on the number of disputes that have been referred to adjudication in recent years. In some instances, I’m sure parties have been eager to try and recoup monies on projects. In others, insolvency may have played its part and may have been as a direct consequence of not being paid (for whatever reason). Parties’ appetite for adjudication is probably as fickle as the British weather. It depends on many different variables at any one time, just like the British weather is influenced by five major air masses, each competing to be the centre of attention but pulling and pushing in different directions.

Smash and grabs are a more recent feature of the adjudication landscape. They are something that I am very familiar with. As the report discusses, they have resulted from the payment notice regime that was introduced in October 2011 with the amendments to the Construction Act 1996. They arise when the employer (or its agent) fails to serve a payment and a pay less notice and have followed Edwards-Stuart J’s judgments in Harding v Paice and ISG Construction Ltd v Seevic College at the end of 2014. As Jonathan said so succinctly at the time, it’s all about the importance of notices, or the lack of, in the case of smash and grabs!

The report also makes a number of interesting points about ambush adjudications, and whether there really is an increased likelihood of an adjudication referral at holiday times. The report refers to what it calls the “Christmas Ambush Theory”, suggesting an increase in referrals in December may be based more on anecdotal evidence rather than actual data. That said, the report suggests a 60% increase in referrals in December of year 17, which may mean that the theory could become more of a reality and parties should prepare themselves for it.

ANBs

It seems that the vast majority of adjudicators are still appointed by an ANB (over 90% in years 15, 16 and 17). The other two methods of appointment are agreeing to a named individual or naming someone in the contract, and these methods seem to be getting more popular. The report wonders if this is because parties are more aware of specific individuals, their expertise and whether they are suitable for a particular dispute. It also suggests parties may be making repeat appointments on a project, to gain the benefits this can bring (both in time and money).

I would agree that the majority of appointments come from ANB appointments, but that the more experienced adjudicators receive a higher proportion of agreed appointments just like it was for construction arbitrators before the Construction Act 1996 came in to force.

However, I wonder how two recent events may impact on the appointment process:

• First we had Coulson J’s judgment in Deluxe Art & Theme v Beck Interiors, which said that under paragraph 8(1) of the Scheme for Construction Contracts 1998, an adjudicator cannot adjudicate on more than one dispute at the same time without the parties’ consent.
• Then there was Hamblen J’s judgment in Cofely v Bingham. Although this was about an arbitrator’s appointment, the ramifications of the bias allegations and the conflicts of interest points will be felt by all ANBs and parties for some time to come. The case has been described as a “game changer” and I think that is right. It is now about transparency and how often an individual has been appointed by one or both parties.

In future, it will also come down to what the parties want to achieve and how far they are willing to co-operate with each other to achieve it. Serial adjudication (even at the same time with the same adjudicator) is permissible, the parties just have to agree to it. Similarly, some parties may be less bothered about the adjudicator’s CV and connections than others.

Who are ya?

In terms of who the adjudicators are, it doesn’t surprise me that the majority are quantity surveyors, followed closely by lawyers (I can tick both of those boxes). The percentages for both are on the increase, while all other professions (except mechanical engineers) are on the decline. This probably reflects the fact that adjudication now has to deal with far more complex issues than perhaps was envisaged back in 1996. That said, payment (or lack of) is still the biggest reason for adjudication, whether at the interim or final account stage. There is also a clear increase in payment issues related to withholding and pay less notices (as discussed above).

Closely associated with this is the organisations that act as ANBs. Twenty are listed, with just under 800 registered adjudicators. It would be interesting to know how many actual individuals are out there. As the report acknowledges, many of us have multiple registrations and so the figure is likely to be far less than 800.

I think some people may also be surprised by the actual numbers listed by some organisations. For example, in year 17 the RICS had 112 registered adjudicators, RIBA had 63, TeCSA had 40 and TECBAR had 143. I’m not sure if I would have expected some of those numbers to be higher or lower, but looking at TECBAR in particular, it does suggest a good portion of those at that bar who specialise in construction work are also acting as adjudicators.

One thing the report doesn’t touch on is how difficult it is for an individual to break into the dispute resolving world. It is a chicken and egg situation. An individual needs experience to get on to ANBs and to get appointments but, without experience, they can’t easily do this. Since more than 90% of all appointments are made by ANBs, this is clearly an important issue. It probably also reflects why the more experienced individuals get more appointments. Perhaps it puts the appointments set out in the Cofely v Bingham judgment into context:

 “…appointed 25 times in 3 years in matters involving Knowles either as referring party or acting for the referring party.”

After all, parties (or their representatives) do have their preferences and are more likely to opt for someone they perceive to be a safe pair of hands based on past experiences.

The use of a select group of more experienced individuals may also be why there is a trend towards higher hourly rates for adjudicators (although this could, in part, be to do with more complex disputes being referred to adjudication). As the report notes, it could also be to do with parties becoming increasingly aware of the benefits of adjudication which, in turn, means they are more willing to spend money on it to resolve their dispute.

Value and who is adjudicating

I was interested to see that there has been a steady increase in the number of high value disputes (£1 to £5 million) referred to adjudication, but that a large proportion of disputes are still at the lower end (£10,000 to £50,000). The report suggests this demonstrates that parties do see the benefit of referring high value disputes to adjudication, as opposed to litigation or arbitration (which is comparatively more expensive). It also suggests that adjudication gives parties access to justice, both in terms of value and complexity.

I would agree. I also often see adjudication being used as a gateway to other forms of dispute resolution. For example, I recently wrote about my experiences of the increased use of mediation in construction disputes. I said then that the disputes I get instructed on (whether as mediator or arbitrator) have invariably been to adjudication somewhere along the way.

It is also interesting to see that the majority of disputes are between a main contractor and a sub-contractor, followed by employer-main contractor disputes. Perhaps that reflects the data on the value of the claims referred. Referring parties no longer seem to be doing so well in the success stakes though, with the rate down from 71% to 50%. The report doesn’t suggest reasons for this downward trend.

Conclusion

The report concludes by suggesting the future for adjudication is “promising”, as parties have not been deterred from it. It hopes that “this will continue to be the case”. I agree. I don’t want to be like Cher, and turn back time!