What is adjudication and how can it be used to resolve construction disputes?

Unfortunately, with the opinions of so many different stakeholders at play, disagreements regularly arise over how things should be done.

While most arguments are resolved as quickly as they arise, some can threaten to derail the project and must be carefully managed to keep it on track.

The adjudication process, which is commonly used in countries like the UK, Ireland, Australia, New Zealand, Hong Kong, Singapore, and Malaysia, enables those involved in a construction dispute to resolve their issues quickly and in a more cost-effective way than going to court or arbitration.

So what is the role of adjudication in the construction industry and what are the key stages of the adjudication process?

What is the role of adjudication in construction disputes?

Adjudication is a fast and cost-effective form of dispute resolution. The process takes just 28 days from start to finish, in stark contrast to the many months (often exceeding 12 months) a construction dispute can take to litigate.

Adjudication was introduced to protect cash flow, often referred to as the ‘lifeblood’ of the construction industry and avoid construction projects being delayed and disrupted by stakeholder disagreements.

The principle of adjudication is that an impartial expert confidentially decides the outcome of a contractual dispute, and their decision is immediately binding.

Adjudication can be used to resolve various types of disputes arising from a construction contract, including those relating to time extensions, payment, and defects. Adjudication isn’t a permanent solution; the outcome of an adjudication only holds until the dispute is decided through another dispute resolution method, such as arbitration or litigation. In reality, though, the parties more often than not consider the issue closed following the adjudicator’s decision and put the matter behind them.

What are the advantages of adjudication?

Adjudication has several key advantages, which include the following:

Speed - An adjudicator generally gives their decision within 28 days, so the parties get a quick resolution.

Cost - Adjudications can be extremely cost-effective, particularly compared to other forms of dispute resolution, such as litigation.

Confidentiality - The process is entirely confidential, so the parties’ reputations remain intact.

Immediately binding - The adjudicator’s decision is binding as soon as it is made, so the parties can focus their energy on completing the project.

Project continuity - The project can continue during the adjudication process, which only takes a matter of weeks.

What are the disadvantages of adjudication?

While adjudication is generally the preferred method of dispute resolution for many in the construction industry, the process is not without its critics. Many of the process’s perceived advantages are also considered shortcomings in certain circumstances.

Speed - The swiftness of the adjudication process is generally considered one of its greatest advantages. The speed comes at the expense of a detailed investigation of the evidence, making it potentially unsuitable for complex cases. If you are on the wrong end of a decision, you may have to pay up significant sums quickly.

Cost - Most parties involved in adjudications use legal representatives, particularly if they are large companies with deep pockets. Unfortunately, the parties are generally not entitled to recover their costs from the other side, even when successful, so they can be left out-of-pocket.

Adjudicator’s decision may be binding even if flawed - Even if an adjudicator makes a mistake in their decision, it is usually binding on the parties. Since the purpose of adjudication is to resolve issues swiftly and avoid the derailment of a construction project, the general approach is ‘pay now, argue later’. So, unless exceptional circumstances exist, the party who feels wronged must swallow the result and argue the point through a different dispute resolution process.

An interim, not a permanent solution - An adjudicator’s decision is immediately binding, but unhappy participants retain the right to have the issue retested through another dispute resolution method.

Challenge to adjudicator’s decision - In the UK, while a decision is immediately binding, it may be necessary to obtain summary judgment in the Technology and Construction Court to proceed to enforce the adjudicator’s decision. Whilst the approach the courts usually take is to do everything possible to uphold decisions, there are sometimes challenges to adjudicator’s decisions on specific grounds (as referred to below).

Summary

The general view amongst those in the construction industry is that adjudication works. It enables participants to resolve disputes quickly, supports cash flow and allows a project to continue in spite of any issues that arise between stakeholders.

Adjudication has its drawbacks, particularly in the context of complex, high-value disputes. The speed of the process makes it difficult for parties to present large volumes of documentation or evidence, and their limited ability to challenge an arbitrator’s decision, even when apparently flawed, can be incredibly frustrating.

The parties can reduce the downsides of the process by ensuring they present their cases in a clear, coherent manner, and choose an adjudicator with the requisite skill and experience to reach a fair decision.

Michael Key is a business dispute solicitor at Harper James.