Construction Act Changes: Adjudication

The Housing Grants Construction and Regeneration Act 1996 (“the Construction Act”) introduced a statutory right for parties to a construction contract to refer their disputes to Adjudication – a speedy and cost effective means of resolving a dispute.

Adjudication has been a hugely popular means of resolving disputes, but it also has its critics. It is also generally considered to have been successful in achieving its aim of maintaining cash-flow during the course of construction projects.

On the 1 October 2011 the long awaited changes to the Construction Act came into force. Richard Millard, our head of construction, has been looking at the main changes the Act is introducing in two parts: the first one looked at the Contracts in Writing and the Payment Mechanism and this second part will look at the changes made to the adjudication process.

Contracts in Writing: Adjudication Procedure

The previous requirement that the Construction Act would only apply to agreements in writing or recorded in writing has been removed. From the 1 October 2011 the Construction Act will now apply to all construction contracts, whether wholly in writing, partly in writing or wholly oral. The "in writing" requirement is not removed entirely.

The adjudication provisions must be "in writing" to have contractual effect, including: 

• A party will be able to give notice at any time of its intention to refer a dispute to adjudication.
• The timetable of the adjudication will require the appointment of the adjudicator and referral of the dispute to him within seven days of the notice.
• The adjudicator must reach a decision within 28 days of the referral (or such longer period as is agreed by the parties after the dispute has been referred).
• The adjudicator must act impartially.
• The decision of the adjudicator will be binding on the parties until the dispute is finally determined by legal proceedings, by arbitration or by agreement.

In the event that a construction contract entered into after the 1 October 2011 does not contain these provisions in writing, the adjudication provisions of Part I of the Scheme for Construction Contracts 1998 will be incorporated into the contract and apply. In practical terms the fact the contract is not in writing and does not include the above terms will not prevent a party having the right to refer the dispute to adjudication as the above terms will become written terms implied into the contract.

The possible consequences of removing the general requirement for a construction contract to be "in writing" include:

• More disputes being referred to adjudication whereas Court proceedings were previously the only other option.
• More disputes between the parties over what the terms of the construction contract are.
• An increase in the number of adjudications that are governed by the Scheme for Construction Contracts.

Statutory slip rule

The Construction Act did not expressly confer on an adjudicator the power to correct a clerical or typographical error in his decision arising by accident or omission. However, the English courts have held that adjudicators do have the power to correct their mistakes (Bloor Construction (UK) Ltd v Bowmer & Kirkland (London) Ltd [2000] BLR 314) (the slip rule).

The changes to the Construction Act require the parties to a construction contract provide in their contract that the adjudicator has the power to correct a clerical or typographical error in his decision arising by accident or omission.

If the contract fails to include such a clause then the Scheme for Construction Contracts (England) Regulations 2011 will apply, which will confer upon the adjudicator the statutory power to:

• To remove a clerical or typographical error arising by accident or omission.
• On his own initiative or at the request of one of the parties.

In such circumstances the adjudicator must:

• make any correction under the slip rule within five days of the date when his decision was delivered to the parties.
• deliver the corrected decision to the parties as soon as possible. The correction will form part of his decision.

Payment of the adjudicator's fees and expenses

A Tolent clause; a contractual provision requiring the referring party to be responsible for all the costs and expenses of adjudication, will not be enforceable. This means that the parties will find it difficult to stipulate for the costs and expenses of adjudication. The parties may only reach such an agreement as to the powers the expert has to award or the apportionment of fees, after the notice of adjudication has been served.

The adjudicator may still apportion liability for his fees and expenses (and the parties may still agree to this in their contract). The parties also continue to be jointly and severally liable for any adjudicator's fees and expenses that are unpaid.

For more information about the changes to the Construction Act or any issue arising from a construction contract please contact Richard Millard on 01908 689382 or by email at rmillard@geoffreyleaver.com