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Moffat .. managing director.
Adjudication, a method to resolve disputes, has received very little exposure in the region. The process, which brings a further dimension to the dispute resolution process, is described as be an equitable and more effective in terms of cost and time involved.
The origins of this process can be traced back to July 1993, when the UK government announced a joint review of procurement and contractual arrangements in the country's construction industry. Sir Michael Latham, the deputy chairman of James R Knowles, was appointed to carry out the review, funded by government and industry bodies, to produce a report on his findings and make recommendations.
His final report entitled "Constructing The Team" was published in July 1994 and made some 30 recommendations to reform the construction industry. Consequently the Housing Grants, Construction and Regeneration Act (1996), covering construction contracts, dealing with such issues as adjudication and payment, was introduced to enforce some of Sir Michael's recommendations.
Of significance was the introduction of a mandatory adjudication process, which is now incorporated into a number of standard forms of contract in the UK as a result of this legislation. Adjudication has also been incorporated, for example in the FIDIC Design - Build and Turnkey Contract, 1st edition, published in 1995 and the New FIDIC Contract for Construction, issued in 1999.
Where a dispute arises between two parties and they are unable to amicably resolve it, either party may take legal action and have the dispute decided by the courts. As an alternative, The two parties may write into the contract procedures to have any dispute between the parties heard in arbitration rather than litigation. Hence, such standard clauses as clause 67 of FIDIC would apply.
Adjudication is a quick-fix solution to a problem, but it is non-binding unless the parties wish it to be, and either party may refer the dispute to arbitration at a later stage. The advantage of adjudication is that the two parties will generally have the "heat" taken out of the dispute, get on with the job, complete the contract and hopefully reach an amicable settlement. It should be noted, however, that if adjudication does not result in a large number of amicable agreements, then it will be little more than a delaying exercise, and will in fact become an additional cost as the only way the dispute will be finally resolved will be in arbitration or litigation.
To date, James R Knowles is considered as one of the leaders in the UK in this method of dispute resolution and has acted in over 800 adjudications.
The Act
The Act defines a construction contract as an agreement to carry out construction operations, arranging for others to carry out construction operations under a subcontract, the provision of one's own labour or the labour of others for carrying out of construction operations and it includes professional services - architectural, surveying, engineering, decoration and landscaping.
The Act expressly excludes certain activities from the definition of construction operations:
The extent of the list of operations that are included or excluded from the Act was one of the most controversial aspects of the drafting and negotiation.
The provisions of the Act only apply where the construction contract or the agreement between the two parties is in writing. An agreement does not have to be signed and can be made by an exchange of correspondence.
The Act provides that certain conditions, such as adjudication or payment, must be included in all contracts within its scope. The parties to the contract are free to agree in which way these matters should be dealt with, but if the contract does not include the relevant provisions or if they do not comply with the provisions of the Act, then a clause as set out in the Scheme for Construction Contracts will automatically be implied into the contract and either party will be entitled to rely upon it.
The process
The Act introduces a right for either party to a construction contract to refer any dispute arising under the contract to adjudication under a procedure complying with Section 108. The contract shall:
The adjudicator's decision shall be binding until finally determined by legal proceedings, arbitration or by agreement. The parties may, however, agree to accept the decision of the adjudicator as final. If the contract does not comply with these requirements, the adjudication provisions of the Scheme for Construction Contracts will apply.
As adjudication is an additional provision for resolving disputes, it differs from arbitration in that:
As the adjudicator's decision is only temporarily binding upon the parties, either party can refer the matter to arbitration or litigation or accept an adjudicator's decision as final and binding.
Appointment of the adjudicator
The adjudicator will require knowledge and expertise of the construction industry and therefore the most likely candidates will be industry professionals, architects, engineers and surveyors. To date, there is no separate recognised qualification for an adjudicator, although various bodies have and are compiling lists of individuals who will act as adjudicators. Some organisations have courses for accrediting or qualifying adjudicators; these include the Academy of Construction Adjudicators (established by J R Knowles), Chartered Institute of Arbitrators and other professional bodies.
Whoever is selected as an adjudicator must have the confidence of the parties to the contract and be able to deal with the majority of disputes that may arise and to be able to act at short notice. Any person involved in major arbitrations will find it very hard to comply with the last requirement.
The first question to be addressed is whether the adjudicator should be named in the contract documents or appointed when a dispute arises. While naming an individual in the contract minimises the delays that could be caused, there are several disadvantages:
Some client bodies are proposing to name an adjudicator, and also an alternative to be appointed in the event that the first named is unable to act. In addition, an adjudicator nominating body is named to make a nomination in the event neither of the named individuals is able to act.
Presenting a case
There is no formal procedure for making a referral or for the response from the other party and each of the standard forms of contract outlines slightly different requirements.
The New FIDIC contract (Red) issued in 1999 (which I have yet to experience in practice here in the UAE), incorporates clauses 20.2, 20.3 and 20.4 in respect of Appointment of the Dispute Adjudication Board (DAB), Failure to Agree Dispute Adjudication Board and Obtaining Dispute Adjudication Board's Decision. These clauses can be summarised as follows:
Making a referral
As all forms of contract vary in their requirements, there is no standard form for a referral. The following particulars should, however, be considered in a referral under any form of contract.
A notice of adjudication must be given and also a referral notice, in either of which details of the contract particulars must be given - that is, the parties to the contract, the parties involved in the dispute, the nature and a brief description of the dispute, where and when it arose and the nature of redress being sought. The details should be supported by a copy of the contract, or extracts from the contract, and any other relevant documents in support.
Long, complicated, rambling submissions will not be acceptable in Adjudication and therefore the referral should be as simple as possible, written in clear, precise and brief terms, outlining the overall case and individual items separately. Photographs and diagrams speak volumes and are therefore better than a thousand written words.
Parties should be alert to those matters that may affect adjudication. Will the adjudicator be competent to carry out the function? What rate will the adjudicator charge and will he require his fees to be paid before he delivers his decision? Is the apportionment of the adjudicator's fees and expenses written into the contract or has the adjudicator the power to decide the apportionment? Does the contract require a referral fee to be paid to the adjudicator on the submission of the referral notice? Does the contract allow joinder up and down the contractual chain? Who carries out any opening up and testing that may be necessary (the adjudicator or one of the parties)? Are there any restrictions imposed upon the adjudicator in the use of experts and advisers and on the parties being represented by legal or technical advisors? Is the adjudicator required to give reasons for his decision and does he have the power to award costs?
In addition to general information required in any referral, specific details will be required dependant upon the matter being referred to adjudication. For example, if the dispute is regarding valuation or set off, then the documents must include the details of the valuation, certificates, set off information, whether it is for under or over valuation, defective work, or damage caused to the works or late completion. A dispute relating to an extension of time would need to be supported by the programme details of the cause and effect, the as-built details, notifications etc.
Application in the region
Bearing in mind that the New FIDIC Contract has had little exposure in the region it will therefore probably be some time until the adjudication process takes a foothold.
Would the process be of benefit to contractors or indeed employers? As it is often only a temporary solution, would the parties even consider it as a potential solution? Readers' views would be appreciated.
