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This guest post from Peter Blake at Prettys Solicitors, Ipswich shares an expert’s guide to adjudication in the construction sector.
The construction sector has had a difficult time of late as illustrated by recent high profile corporate failures in the sector. There was a 0.1 % fall in output for the quarter to June 2024.[i]
There are, however, green shoots of recovery evidenced in the form of a rise in output for the month of June 2024[ii]. This perhaps reflects a greater confidence in the economy and an improvement in the housing market in anticipation of interest rate reductions – the first of which has already come about, albeit narrowly.
The Bank of England will continue to exercise caution in relation to further rate reductions with a continued eye on inflation.
But it remains to be seen whether signs of recovery develop. Cash is always king and never has this been truer than in recent times. Recovery or not, the paramountcy of cash will continue for businesses whose cash reserves have diminished or come under pressure more recently.
For those involved in the construction sector in any way, particularly one off or first- time employers procuring work, the importance of adjudication in securing or preserving a healthy cash flow cannot be overstated.
What is adjudication?
Adjudication is a summary form of dispute resolution, which has become the most frequently used process to resolve disputes in the construction sector. It is usually quicker and less expensive than other methods of dispute resolution.
Additionally, there is a statutory right to adjudicate on disputes arising under construction contracts at any time.[iii]
And, although the statutory adjudication provisions do not apply to contracts with residential occupiers, most standard form contracts e.g. JCT contain adjudication provisions.[iv]
Notified sums versus true value
There are two bases for claims in adjudications; notified sums or true value.
Notified sum claims are also referred to as “smash and grab” and they are
the amount payable by reference to the notices that are required in any payment cycle. Classically an interim application should be met with a payment notice from the paying party, stating the amount due and the basis on which it is calculated.
There is then an opportunity for the paying party to serve a pay less notice, stating how much less is to be paid than in the payment notice and the basis on which it is calculated.[v]
The amount due by reference to notices served (or not as the case may be) is the notified sum. If a notice is not served the default position will apply e.g. in the absence of a payment notice the interim application will stand as such.
There is a right to payment of a notified sum which will be upheld through adjudication.[vi] Therefore it is very important that all notices are served on time.
If a party does not agree with the notified sum and, subject to payment, if an adjudication decision is obtained, a true value claim may be made.[vii] This involves proving the value of the work performed by reference to the contract.
Other case law
Adjudication has evolved over time through case law and statutory amendment. There are nuances to the position as described above which cannot be explored here.
Tips for the unwary
The statutory regime requires contracts to comply as regards payment provisions. If not, the terms of the Scheme[viii] will apply.
The payment provisions of a contract should be read carefully to ensure they are compliant.
The terminology used can be confusing. ‘Due date’ is the date which triggers the service of notices rather than the date by which payment should be made. Instead that is known as the ‘final date for payment’.
The dates for service of notices should be diarised as an aid to compliance or policing to avoid inadvertently allowing a notified smash and grab claim to arise, or missing the opportunity to make one. Failure to enforce payment terms can lead to claims being waived or the contract being varied by conduct.
Most adjudication decisions are complied with function as a catalyst for a settlement. A decision is binding on an interim basis, i.e. until varied through litigation or arbitration. A decision can be enforced through the Technology and Construction Court, which has developed an efficient procedure.
There are limited defences available to enforcement, namely: the adjudicator exceeding the jurisdiction given by the notice of adjudication; and breach of natural justice.
Evidence and adjudication
Adjudication is a quick process typically lasting between 4 and 8 weeks, although complex claims can take much longer. Although some adjudications will involve meetings it is primarily a paper- based procedure.
Therefore, good records are key to success in adjudication. Multiple concurrent documents will usually carry more weight than witness evidence, which will usually be in statement form with no cross examination.
In conclusion
Adjudication was conceived as a means of maintaining cashflow in the construction industry.
The courts are predisposed to enforce adjudication decisions as a matter of policy.
And any party, whether procuring or carrying out construction works, ignores the contract payment provisions and their related obligations at their peril.
For any questions relating to the adjudication process, please contact Peter Blake, Head of Construction at Prettys Solicitors LLP by emailing pblake@prettys.co.uk or call 01473 298206
[i] Office for National Statistics statistical bulletin, Construction output in Great Britain: June 2024 , new orders and Construction Output Price Indices, April to June 2024 published 11th August 2024.
[ii] Ibid
iii] Section 108 Housing Grants, Construction and Regeneration Act 1996 (as amended).
iv] Ibid, Section 106
v] e.g. Part II of The Scheme for Construction Contracts (England and Wales) Regulations 1998
[vi] e.g. S&T(UK) Limited v Grove Developments Limited [ 2018] EWCA Civ 2448
vii] It is possible to make a notified sum and an alternative true value claim in the same adjudication Bellway Homes Limited v Surgo Construction Limited [2024] EWHC 10 TCC
[viii] The Scheme for Construction Contracts (England and Wales) Regulations 1998
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