The future of construction adjudication

More than 25 years after the introduction of mandatory construction adjudication, we consider its future in light of a recent report by King’s College London (KCL) - 2022 Construction Adjudication in the United Kingdom: Tracing trends and guiding reform (the KCL report).

The KCL report was based on responses to KCL’s questionnaires by ten adjudicator nominating bodies (ANBs) and by 257 individuals (of whom 44 act solely or predominantly as adjudicators).

We discuss below some of the key findings of the KCL report, trends in adjudication and their implications for the future of construction adjudication.

Types of disputes and claim values

The most common value of an adjudication claim is between £125,001 and £500,000, although 16% of responses said that claims above £5 million were the most frequent and 5% selected a value of less than £25,000.

The most common reported causes of disputes are:

• Inadequate contract administration (49%).
• Changes made by the client (46%).
• Exaggerated claims (43%).
• Lack of competence of project participants (41%).

The most common reported types of claim are:

• Claims for extension of time (73%).
• Final account claims (52%).
• Claims for interim payments (49%).
• Claims for damages (25%).
• Claims for liquidated damages (20%).

5% reported professional negligence as the most common type of claim.  

Costs and fees

Even though adjudication is a cheaper mechanism for resolving disputes, it can still be prohibitively expensive for low value claims (even with adjudicators taking steps to reduce the costs of adjudication, for example, by determining the case only on documents and/or limiting the time periods for individual submissions).

The most common hourly rates of adjudicators are between £251 and £300. The total fees of adjudicators vary, but the most common total value of adjudicators’ fees falls between £8,000 and £30,000.

Nomination fees charged by ANBs vary considerably, from £1,250 (London Court of International Arbitration (LCIA)) to £75 (The Technology and Construction Bar Association (TECBAR)). 

The adjudicator’s jurisdiction to decide on liability for the parties’ costs of the adjudication is dependent on the contract terms or the applicable adjudication rules. Absent an express power to do so, an adjudicator cannot award costs of the parties. The scheme and most standard rules permit the adjudicator to determine which party should pay the adjudicator’s fees and apportionment of liability for those fees.

Most commonly, the adjudicator follows the ‘loser pays all’ approach (39%), closely followed by apportionment based on each party’s relative success in the adjudication (38%). Least common is for the adjudicator to apportion fees based on prior offers to settle.

Period for reaching decision

Statutory adjudication requires the adjudicator to reach a decision within 28 days of referral or within 42 days with the agreement of the referring party. The parties can agree to extend the period further.

A typical adjudication lasts between 29 and 42 days. Only 16% of respondents said that adjudication typically ends within 28 days.

Publication of adjudicators’ decisions

The statutory adjudication process is confidential unless subject to enforcement proceedings or subsequent litigation. Adjudicators do not publish their decisions and so there is no doctrine of binding precedent as is the case in court proceedings.

Statutory adjudication does not require the adjudicator to give reasons for their decisions, although the parties may request that the adjudicator does so. 

Most respondents (58%) thought that adjudicators’ decisions should not be made publicly available, but 30% thought that they should do, but with redactions, following the Singaporean model of adjudication. 8% replied that they should be published fully, as in Queensland, Australia.

The publication of adjudicators’ decisions has a few potential advantages:

• It could create an informal system of precedent, creating more certainty to the parties.
• It could reduce the risk of serial adjudications with potentially inconsistent outcomes.
• It could reduce the likelihood of undetected bias and encourage adjudicators to maintain the highest standards.

Bias and conflict of interest

40% of respondents suspected, at least once, that an adjudicator was biased towards a party. The most common reason for perceived bias was the adjudicator’s relationship with the parties or their representatives (63%).

The KCL report notes that it may be desirable to take steps to address the issue of perceived bias, including a code of conduct applicable across all ANBs. However, a code of conduct might lack the necessary teeth for it to have impact.

Only 5% of adjudicated cases proceed to litigation or arbitration. Contrary to the KCL recommendations, this suggests that parties to adjudication are not so concerned with issues of bias or conflict of interest that they turn to litigation or arbitration to avoid being prejudiced by perceived bias.

Diversity in adjudication

Adjudicators suffer from poor diversity. Based on information from ANB panels, only 7.88% of adjudicators are women. The issue of diversity is broader than gender, but there was no data available on representation on ANB panels for characteristics other than gender.

Some ANBs are taking active steps to increase diversity on their panel of adjudicators, such as TECSA who seeks, where possible, to add adjudicators to the panel from underrepresented groups. ANBs may wish to follow the Courts and Tribunals Judiciary who, in 2020, launched a five year Judicial Diversity and Inclusion Strategy.

Perception of abuse

22% of respondents said that the adjudication procedure is abused always or most of the time. 59% said it happens sometimes.

This perception may arise where one party is perceived as having an unfair advantage over the other by, for example:

• The referring party taking a significant amount of time to prepare before issuing the notice of adjudication but where the responding party typically has only 7 to 14 days to respond.
• The referral notice being long and complex and accompanied by voluminous and/or irrelevant documents.
• The referral notice being minimal but the reply being long and complex and accompanied by voluminous and/or irrelevant documents.
• A pre-holiday ambush by commencing adjudication just before common holiday periods in August and December.

Where the adjudicator believes that the adjudication process is being abused, they may decline the appointment or resign. The KCL report does not say how often this occurs, if at all. The adjudicator might also penalise the offending party in costs, but it would be limited to the adjudicator’s fees and so the penalty is probably insufficient in itself to prevent abuse.

Comment

We welcome the report and supporting data, indicating the number of adjudication referrals and type of disputes referred have increased since the introduction of statutory adjudication in 1998.  

Where claims can be resolved finally by way of adjudication, the costs risks to the parties will be reduced. There will also be greater certainty and control over costs which tend to be a fraction of litigation or arbitration costs. Further, the losing party will not be liable for the other party’s costs. The flip side is that a successful party will not recover its costs but this may focus their mind on the need to limit costs expenditure.

There are problems of perceived bias which ANBs can take steps to address. There is also a problem with diversity, with less than 8% of adjudicators being women and no data on other unrepresented groups. Diversity will need to be promoted for adjudicators to be representative of society and the construction industry. To achieve this, adjudicators should be drawn from the widest pool of talented individuals regardless of background.

Whilst adjudication is currently a confidential process, it is possible that adjudicators’ decisions will, in future, be made public, creating an informal system of precedent, greater transparency and consistency which could address issues of perceived bias. Greater consistency and predictability of the outcome of adjudications would also be welcome in assessing the risk of bringing or defending a claim via adjudication.