Why Does Construction Adjudication Exist in England?

The UK construction industry is enormous, likely to become the sixth largest construction market in teh world (and the largest in Europe) in less than a decade. However, this success is a relatively recent development. In the early 1990s, the sector faced a recession that significantly reduced economic output and employment. Compounding these challenges, construction contracts were particularly prone to disputes about (in particular) payment, and it was not unusual for more powerful parties ‘up the chain’ to take advantage of the economic unstability of sub-contractors and suppliers by delaying payments whenever disputes arose. The Court of Appeal said in 2003 that:

Construction contracts do by their nature generate disputes about payment. If there are delays, variations or other causes of additional expense, those who do the work often consider themselves entitled to additional payment. Those who have the work done often have reasons, good or bad, for saying that the additional payment is not due.

At that time, dispute resolution options for the party owed money were limited to litigation or arbitration, both of which were heavily criticised as being expensive and slow. Counsel and expert fees were considerable, and the process was time-consuming by design. For sub-contractors and suppliers, many of whom were SMEs, these realities made formal dispute resolution unappealing and more likely to lead to insolvency than a satisfactory solution. Often, therefore, the economic pressure imposed by the more powerful party ‘up the chain’ led to sub-contractors and suppliers being unable to enforce their rights, or hold the more powerful parties to their obligations.

In short, the inaccessibility of binding dispute resolution for smaller, lower-value dispute made those disputes essentially un-winable, and the SMEs (and the industry more widely) suffered significantly as a result.

The 1994 Latham Report, authored by Sir Michael Latham, sought to address these issues. He targeted, in particular, inefficiencies in cash flow and dispute resolution within the construction sector. Part 9 of the report focused on dispute resolution, concluding that adjudication should become the primary method for resolving construction disputes. Sir Michael specifically recommended:

1. that a system of adjudication should be introduced within all the standard form contracts, and that this should be underpinned by legislation';

2. there should be no restrictions on the issues capable of being referred to the adjudicator;

3. the award of the adjudicator should be implemented immediately;

4. any appeals to arbitration or the courts should be after practical completion, and should not be permitted to delay the implementation of the award;

5. resort to the courts should be immediately available if a party refuses to implement the award of an adjudicator. In such circumstances, the courts may wish to support the system of adjudication by agreeing to expedited procedures for interim payments; and

6. training procedures should be devised for adjudicators. A Code of Practice should also be drawn up.

Not all of these recommendations were implemented, and some were implemented in a slightly different way. However, the basic idea of immediately and universally available dispute resolution that gave an immediately-binding solution which was supported by the courts was implemented through the Housing Grants, Construction and Regeneration Act 1996 and supplemented by the Scheme for Construction Contracts (England and Wales) Regulations 1998.

Since its introduction, statutory adjudication has been adopted in other common law jurisdictions, albeit with notable differences. For example, Singapore limits adjudication to payment disputes (unlike the UK, where any dispute arising under a construction contract can be adjudicated) and in Queensland, Australia, adjudicators’ decisions are published, while Singapore provides redacted versions (in the UK, decisions remain confidential though no statutory provision mandates this).

In 2004, Sir Michael Latham reviewed the 1996 Construction Act and proposed removing the requirement for contracts to be in writing to enable mandatory adjudication. He also advocated for simplifying the payment process. These recommendations led to the Local Democracy, Economic Development and Construction Act 2009 (LDEDCA), which came into force in 2011, alongside amendments to the Scheme under the 2011 Scheme for Construction Contracts Regulations.

In summary, construction adjudication exists in the UK so as to provide a (semi) formal means for parties to resolve their disputes quickly, without having to resort to the more complex, time-consuming, and expensive methods of litigation or arbitration. It is a dispute resolution process that is strongly supported by the courts, allowing a party who succeeds in an adjudication to go to court and enforce it via a much quicker and cheaper process than if they had to start from scratch by suing the unsuccessful party in court.

If you need help with any aspect of adjudication, or the enforcement of an adjudicator’s decision, contact Hamshaw today.