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The Construction Act is useful, but is in need of a retune

Michael Janney

Next year marks the twentieth anniversary of the Construction Act, which introduced a cheap and speedy means to resolve disputes. But it needs reform. 

While adjudication at its heart is working well, proving effective at resolving construction industry disputes, the timetable it requires is producing some rough justice. 

This is because the adjudicator must generally reach a decision within 28 days. Such a challenging pace, however well-intentioned, can lead to questionable results. 

In addition, parties can find themselves with too little time to fully investigate their dispute and provide all the evidence and arguments they wish to present. 

Furthermore, adjudicators’ decisions will then often still be enforced even if they resulted from errors of procedure, fact or law. 

The result has been challenges to adjudicators’ decisions through costly court proceedings. 

Safeguarding cashflow

The original and laudable aim of the 1996 Act, which came into force in 1998, was to maintain cashflow during the course of a construction project by resolving disputes on an interim basis, even if they are eventually overturned by litigation, arbitration and / or agreement. 

The legislation was introduced to address concerns about unfair payment practices, especially between main contractors and subcontractors. It provides a framework for payment provisions in construction contracts and a basis for adjudica­tion. 

There is also some useful flexibility within its provisions.

For example, parties are free to agree their own adjudication procedure, provided that it complies with the basic requirements in the act. If the agreed procedure does not satisfy those requirements, then the Scheme for Construction Contracts will apply. 

“The result has been challenges to adjudicators decisions through costly court proceedings”

Once the adjudicator has made a decision, then this becomes binding on a temporary basis unless and / or until overturned.

The crucial factor is that it provides some degree of certainty for the parties. 

But while adjudica­tion was originally developed to assist with cashflow issues, it has been used to resolve other types of disputes, such as ’kitchen sink’ final accounts and claims for professional negligence. 

This is not what was originally intended or what the timetable allows.

If a dispute is large and complex, as it often is, it will often simply not receive the analytical rigour needed to find even a temporary decision.

‘Smash and grab’

There has also been a rise in ’smash and grab’ types of adjudica­tion as a result of chan­ges to the original act in 2011. This is where a payer fails to issue a pay less notice as required under the amended legislation.

The result can be that the payee becomes entit­led to the total amount applied for, which can lead to unfairness and the need to commence yet a further adjudication involving more time and costs. 

Yet despite the difficulties that have emerged over the past 20 years, statutory adjudication has been a great success in the UK. 

Unfortunately, one of the by-products of providing a speedy mechanism for settling disputes on an interim basis appears to be the occasional injustice.

A review of the act, whilst acknowledging its enormous fundamental value, would provide a good opportunity to retune it.

Michael Janney is a construction litigator at law firm Healys

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