Much has been written in recent months about the proposed amendments to the Construction Act 1996. It is not yet clear how many of these amendments will survive the next stages of the legislative enquiry.
I summarise here the key changes to the adjudication provisions, and discuss the likely implications. There are other proposed changes which are relevant to the payment provisions of the Construction Act (such as new payment provisions, which would involve scrapping the withholding notice), but these are for another day.
Contract need not be “in writing”
A repeal of the requirement that construction contracts are “in writing” seems designed to meet the complaint that requiring the “whole agreement”, not just part of it, to be in writing leads to difficulties of interpretation and anomalous outcomes.
Many in the construction industry have welcomed this relaxation of the rules and the consequent expansion of the scope of adjudication. However, this proposed change does have the potential to cause adjudicators difficulties:
- One advantage of the existing law is that it provides certainty. If the contract has to be wholly in or evidenced by writing, then there is less scope for uncertainty about what the terms of the contract are.
- If, on the other hand, a contract was concluded orally, there may be differences between the parties about what precisely was agreed in those discussions. It may be one party’s word against another’s. Adjudicators may find they have to conduct a greater investigation into the terms of the contract, and make more wide ranging findings of fact, than they do at present.
New requirement for an adjudication agreement to be in writing
Given the “in writing” requirement is to be repealed, it is rather odd to introduce a requirement that the adjudication agreement is in writing. There is no explanation for this new requirement.
This change may be designed to mirror the requirement in the Arbitration Act 1996 that the arbitration agreement should be in writing. However, the rationale for that requirement (agreeing to arbitrate excludes the right to litigate a dispute) does not apply to adjudication agreements (there is a statutory right to adjudicate, which does not preclude the parties from later litigating).
In practice this requirement is unlikely to cause too many difficulties. In default of a written adjudication agreement, the Scheme for Construction Contracts will apply instead.
Introduction of a statutory slip rule
Some may be surprised that a statutory slip rule is required at all. It will give the adjudicator the right to correct a typo or clerical error, with no time limit for such correction.
In current practice, the parties may agree that there is error in the adjudicator’s decision and authorise the adjudicator to correct it. Sometimes the adjudicator corrects such an error on his own initiative. The new requirement seems aimed at preventing a situation where, for example, the error results in an award of £1,000 instead of £10,000 and one party will not consent to a change and then refuses to pay more than £1,000.
The new requirement creates a number of problems:
- If this rule is not expressly set out in writing in the adjudication agreement, then the adjudication agreement will be invalid, and will be replaced in its entirety by the Scheme.
- In the absence of any time limit, it would be possible to correct the error long after the expiry of the 28 day timetable for the decision. This would undermine the effectiveness of adjudication, which is designed to be a speedy means of resolving disputes.
- It could undermine the certainty of the adjudication process. At present parties are, on the whole, happy to live with adjudicators’ decisions, notwithstanding it can be a rough and ready process. This new requirement raises the spectre of a whole new raft of challenges to adjudication enforcement.
Any agreement as to who pays adjudication costs must be made after referral is made
This change may well have unfortunate consequences. Responding parties are unlikely to be willing to enter into an agreement that the adjudicator has discretion on costs once the adjudication is underway, particularly if, for example, they have little confidence in their defence or in the appointed adjudicator. Alternatively they may refuse to agree to the adjudicator having such discretion simply because they want to hedge their bets. This may mean the referring party has no choice but to pay half of the adjudicator’s fees even if wholly successful in its claim.
Equally, referring parties may be put off referring smaller value disputes to adjudication regardless of the strength of their claims due to the likelihood of having to pay half the adjudicator’s fees in any event.
Conclusion
It will be some time before the Bill is enacted: there remain many more rounds of legislative examination. Some of these proposals may be changed; some may be disposed of altogether. The debate over these changes will continue to rage. However, there is no doubt that the adjudication provisions will change sooner or later, and this will undoubtedly lead to a new raft of different challenges to adjudicators’ decisions and new jurisprudence.
