Member Article

Adjudication is not Litigation, It's Better!

With Watson Burton LLP Law Firm

Prospects are gloomy for the rest of 2008 and 2009 within the construction industry we are being told. It is expected that the situation will not improve until 2011. Uncertainty and tension due to financial difficulties triggered by the credit crunch results in firms attempting to renegotiate costs and break contracts, hence it is predicted that disputes will soar in the next year. When money is scarce, people become more litigious in an attempt to secure every penny due to them. There has been a noticeable increase since the credit crunch in contractors becoming more aggressive, renegotiation of contracts and the “claims culture”.

And it is unsurprising that companies are nervous when findings such as those of Price Waterhouse Coopers show 499 insolvencies in the construction sector in the second quarter of 2008.

Management of cash is essential to the building industry and cash flow is the key to security. If payment is owed and no withholding notice has been issued, a party often has an indefensible statutory right to payment. If that demand is not met then work on site can often also be suspended until payment is received. This is a significant power as it not only limits exposure, but it can be extremely effective in obtaining a response as an incomplete project doesn’t bring and money in and continues to incur cost. The overriding objective of the employer will be to complete the project on time, without delay and disruption.

Adjudication is an invention of the Construction industry itself with the purpose of enabling a quick, interim but enforceable award to be made in advance of what could be complex and expensive disputes. It moves the cash on a short term basis. Quite simply, construction work is disputatious. There is no time to waste on a project, so problems must be nipped in the bud so those concerned can get on with their work. Adjudication is a tool for deciding the problem that is getting in the way of progress, and deciding it now. It makes no sense to save up your rows; it is more practical to find a working resolution for the dispute you are having and move forward with the project. Adjudication is a statutory and often contractual procedure by which any party to most construction contracts has the right to have any dispute decided by an adjudicator, who can be a professional in the field. It is intended to be quicker and more cost effective than litigation or arbitration, designed to be concluded within 28 days. The decision is temporarily binding and is generally upheld by the courts. Over 70% of adjudications are never revisited, so the adjudicator’s decision is often the final word.

There needs to be a mature approach to the current economic climate and knee jerk reactions to the situation must be avoided. The competitive management of uncertainty often sees parties in a battle of wits, using every tactic to come off best. This can be expensive and lengthy. The alternative is to approach uncertain and adverse events with a collaborative style of management. No method of dispute resolution has all the answers, but to avoid lengthy and costly court proceedings, adjudication could be the answer to resolving a dispute quickly, enabling the project to continue and working relationships to be maintained.

More and more disputes are going to adjudication over payment disputes. It is designed to be quick and cost effective - and for many, it’s worth it.

If you have any comments or questions about this article or any Construction matters, please contact Iona Sims of Watson Burton LLP at iona.sims@watsonburton.com.

This was posted in Bdaily's Members' News section by Ruth Mitchell .