United States: UK Construction And Engineering Adjudication 2022 – A Year In Review

Coulson LJ could not have encapsulated Adjudication more succinctly:

"It is not an alternative to anything; it is the only game in town."¹

In the UK construction and engineering industry adjudication remains the main forum and means for resolution of disputes, many of which are complex and significant in value. In this blog the author looks at, and summarisers, the salient points arising from an illuminating report arising from a collaboration between The Adjudication Society and the team at Kings College², led by Professor Renato Nazzini and Aleksander Kalisz. The collation of data from the questionnaire(s) looks at emerging trends and identification of areas of further refinement in the process.

Save for the comments by the author, which can be found italicised, the summary below is taken from Nazzini. N and Kalisz. A, (2022) 2022 Construction Adjudication in the United Kingdom: Tracing trends and guiding reform. Centre of Construction Law & Dispute Resolution. King's College London, in collaboration with the Adjudication Society.

I. The impact of Brexit and Covid on Adjudication referrals.

• With regard to the volume of adjudication referrals, the number peaked in May 2020 – April 2021 at 2,171. The number has since decreased by over 100, which suggests that both Brexit and the pandemic have not had significant impacts on the number of disputes being referred to adjudication.
• This is perhaps not entirely surprising given the desire of the government for the construction industry to continue to operate largely throughout the pandemic.
• This was reflected in the fact that almost half of the parties suggested that they believed that the pandemic had had no effect on the number of disputes they had seen referred.
• It would have been interesting to assess the level of Covid related claims that have been dealt with in Adjudications.
• Nomination fees have remained constant between 2021 and 2022.
• Seasonality affected the adjudication process, with the least popular times for referral being August and December.
• Notices served prior to the summer and Christmas holiday periods are thankfully becoming a thing of the past. During the early years of the advent of the Construction Act (1996) and adjudication process, it was not uncommon for parties to seek tactical advantage by commencing adjudications prior to the summer and Christmas vacation periods.

II. Complaints about adjudicators before Adjudicator Nominating Bodies.

• There were a greater number of complaints made to the ten Adjudicator Nominating Bodies (ANB's) exhibited in the report within May 2021 – April 2022 (47 in total) compared to 39 for that same time frame in the previous year.
• The standard protocol when submitting a complaints regarding adjudicator is that they should be raised before the adjudicator first, with the view of obtaining a resignation before commencing further action.
• Is there a reluctance by adjudicators that are subject to complaints to merely 'soldier on' rather than resign? It is equally good to see that the ANB's have in place robust systems in the case of legitimate disputes.
• The most common ground for a complaint from parties was a lack of jurisdiction of the adjudicator.
• Should the conduct of an adjudicator be so bad that it presents clear issues of jurisdiction or natural justice, the decision made can be challenged before the courts in a formal setting.
• At the stage where the matter is referred to court, there is a real risk of reputational damage for the adjudicator who has misbehaved.

III. Value, causes and categories of claims referred to adjudication:

• The report highlights that the most common value bracket of an adjudication is between £125,001 and £500,000. A minority of responses suggested that the value was commonly below £25,000 and a smaller minority stating that of over 5 million.
• It would be interesting to assess, in next year's report, the feedback on high value or complex adjudications and the suitability of the process in comparison to arbitration.
• Inadequate contract administration, changes made by the client and exaggerated claims at accounted for around 45% each of disputes referred to adjudications (note that study participants could selected multiple options.)
• With regards to heads of claim, extensions of time were by far the most dominant option.
• Account claims and claims for interim payments were also heavily subscribed reasons. On the other hand, damages accounted for just a quarter of claims, with liquidated damages sitting around the same percentage.
• Internal disputes constituted the smallest number of claims, along with, inappropriate contract forms, inappropriate contractor selection, estimating errors and vested interests.

IV. Duration of proceedings.

• Over half of respondent's report that 29 to 42 days from the date of the referral notice was the average time for an adjudication's completion. Around a sixth respondents stated that the default 28-day period is the typical length of the proceedings. Less than a third suggested that the typical duration extended more than 42 days.
• The fact that one third of adjudications are beyond 42 days reflects the fact that a large number of high-value and complex arbitrations are essentially mini arbitrations. There is an appreciation of parties of the need to allow the adjudicator a fair and reasonable opportunity to resolve matters over an extended and sensible timetable.
• Only three respondents suggested that availability of the parties, counsel, witnesses and experts might affect the length of the proceedings.

V. Costs.

• Almost all of the survey respondents stated that the common price of an adjudicator sat between £251 and £400 per hour.
• In terms of total fees for a matter, the most common values sat in the bracket of £8,000 to £30,000.
• Regarding cost efficiency, many adjudicators commonly sought to reduce their fees by determination of the case only on documents, limiting the time periods for individual submissions and working only with electronic bundles.

VI. Adjudicators' approach to fees and expenses.

• Almost half of respondents stated that adjudicators most often follow the 'loser pays all' approach. However, apportioning fees based How successful each party is in relation to the value of the claim was also a largely quoted answer.
• The least common fee approach was apportioning based on previous settlement offers that had already been rejected.
• Given that costs of an adjudication are not insignificant, should adjudicators give cognisance to cost protection letters/offers? Should conduct be a consideration when apportioning costs?

VII. Publication of adjudicators' decisions.

• Well over half of questionnaire respondents stated that the decisions from an adjudication should not be published publicly. A far smaller number suggested that only redacted versions should be published. The smallest minority were those suggesting un-redacted publishing.
• Adjudication is innately a private process and the sanctity of this, in the writer's opinion, ought to be preserved as far as possible. Of course if the matter goes to enforcement before the TCC its back in the public domain.

VIII. Technology and cybersecurity use in adjudication.

• 91% of questionnaire respondents suggested that technology can assist adjudication through aiding document management and distribution and a similar percentage added that it could help with logistical matter such as the use of remote hearings.
• As a comment, adjudicators should resist asking for documents in hard copy. This is simply impractical and an unwarranted expense; especially where the documents are voluminous.
• With regards to maintaining cyber security for matters the most common measures taken by adjudicators were sharing documents only on password-protected links, conducting routine backup of documents and using encryption. Each of these were reported by less than half of questionnaire respondents.
• Rather, a third replied that adjudicators take no specific cybersecurity measures when conducting matters.
• Only 10% of questionnaire respondents had witnessed adjudicators requesting parties from law firms to provide undertakings that their electronic document storage systems and emails are secure.
• Cybersecurity is an important issue of awareness for the sector, given that the industry has been reported over the years to be a target by cyber criminals. Furthermore, in relation to national infrastructure or government projects, cognisance of the requirements for ensuring cybersecurity and data protection is even greater.

IX. Adjudicators' perceived bias and failure to disclose.

• Around 80% of questionnaire respondents agreed with the fact that adjudicators always, or the majority of the time, ensure than an equal footing exists between the parties.
• It is widely acknowledged that in accordance with this, many ANB's use ethical codes or standards in place to maintain this equal footing.
• Should there be a bias suspected, the adjudicator's relationship with the parties or party representatives was by far the most quoted reason.

X. Enforcement of decisions and further litigation/ arbitration.

• Proceeding to further litigation or arbitration is a rare instance, with just under half of questionnaire respondents stating that it occurs in less than 5% of cases
• A quarter said that they have never experienced further action after an adjudication dispute.
• The most common reasons for further action were jurisdictional objections, followed by natural justice and other grounds. These only succeeded in a very small minority of cases (less than 5%).
• It is interesting to see that only in less than 5% of cases did the parties take matters further to litigation or arbitration. This reflects the confidence of parties with the adjudication process. It still remains the position that, on the whole, decisions are final and binding because they are not referred to subsequent litigious or arbitral proceedings.

XI. Errors in Adjudicator Decisions:

• 85% of questionnaire respondents had experienced clear errors other than clerical or typographical errors which affected the outcome of the decisions.
• If such errors occur, the use of slip rule for correction is always triggered by one of the parties, rather than the adjudicator.

XII. Resisting Adjudication Enforcement Decisions:

• There are limited grounds on which the courts could decline summary judgement to enforce a decision.
  • where the adjudicator acted outside of jurisdiction; or
  • where there is breach of natural justice.
• Errors of fact or law are not sufficient grounds for the court to decline enforcement.
• Of the 189 summary enforcement cases analysed by the Report, the TCC declined enforcement on 40 of them (around 20%). This is a particularly surprising percentage figure and one that would be expected to be far lower.

XIII. Diversity in Adjudication

• Adjudication has, and remains to, suffer from the poor diversity of current adjudicators. Diversity is of course not purely gender related however, based on data from a limited number of AND panels surveyed in the report, the number of female adjudicators was extremely low, at slightly under 8 %.

XIV. Reform

• There were a number of items that questionnaire respondents suggested should be part of a reform of the Construction Act. The most notable being:
  • Removal of the section 105(2) exclusion concerning energy sector-related construction operations.
  • Removal of the residential occupier exception under section 106
  • An amendment to the current payment regime relating to payment and pay less notices which have led to the increased volume of 'smash and grab' adjudications.

This is a fascinating and insightful research piece, and it is recommended that interested parties read it in its full glory. We thank all involved for their contributions and insight, and look forward to the next survey by the Adjudication Society that will be released in Spring 2022.

Footnotes

1. John Doyle Construction Ltd (In Liquidation) v Erith Contractors Ltd [2021] EWCA Civ 1452, [2021] Bus LR 1837, [2021] WLR(D) 516

2. Centre of Construction and Dispute Resolution in conjunction with the Dickson Poon School of Law.

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