On 21 June 2019, the Technology and Construction Solicitors’ Association (TeCSA) launched a pilot for a new low-value dispute adjudication service. The pilot will run until November 2019 and its purpose is to improve access to the statutory right to refer disputes arising under construction contracts to the quicker dispute resolution system of adjudication.
Adjudication generally—When, how and why?
Many construction professionals will already be aware of the adjudication regime and how it has changed the landscape of dispute resolution in the industry. It has been an extremely effective tool in increasing cash-flow in the construction industry and ensuring that projects are not unduly delayed by payment disputes.
Adjudication was put on a statutory footing by the Housing Grants Construction and Regeneration Act 1996 (“the Construction Act”) and was later amended by the Local Democracy, Economic Development and Construction Act 2009. The basic function of the Construction Act is to provide for terms implied by law that in all construction contracts there is a right to stage or interim payments for any qualifying works, and further that in all commercial construction contracts (building contracts with a residential occupier are specifically excluded in the Construction Act) that the parties will have the right to refer a dispute arising under the contract to adjudication “at any time”.
Where no provision is made in the relevant construction contract for the manner in which the adjudication is to be run, then the further provisions of the Scheme for Construction Contracts will apply, providing relevant timescales for payment mechanisms and referral of disputes to adjudication.
Adjudication is commonly used for payment disputes – including “smash and grab” disputes regarding the timing of payment notices – but can also deal with any dispute arising under the relevant construction contract, including final accounts, defects in performance or even declarations as to the rights and obligations of each party under the contract.
If a party wishes to refer a dispute under the contract to adjudication it will need to refer the dispute to an adjudicator or an adjudication nomination body named in the contract (e.g. RICS, TeCSA or TECBAR). Where no nomination body is named, the referring party can choose an appropriate nominating body.
Adjudication in lower-value claims
Although adjudication has been used frequently in disputes over £100,000, it has been shown through research and consultation with TeCSA that parties will commonly not refer disputes to adjudication because of concerns about costs.
Firstly, the general rule is that no costs are recoverable by the party that succeeds in the adjudication – subject to an award of the adjudicator’s fees.
Secondly, the level of the adjudicator’s fees can vary significantly between appointees and can become significant. The Adjudication Society released a report in November 2017 which indicated that the average hourly rate of adjudicators was £210 and the median average overall fee was £7,000.
TeCSA have therefore sought to address this costs concern at least partially with the new scheme. The Construction Industry Council, RICS and the Federation of Master Builders, are also looking to develop their own bespoke adjudication procedures for low value disputes so this may be the first in a wider trend to bolster the use of adjudication at the bottom-end of the disputes marketplace.
The TeCSA Low Value Disputes Scheme
To fall within the scheme, the claim must not exceed £100,000 (exclusive of VAT and interest).
The key benefit of the LVD scheme is that adjudicator’s fees will be capped in accordance with the following table:
|Up to £10k
|Up to £10,000 to £25,000
|£25,000 to £50,000
|£50,000 to £75,000
|£75,000 to £100,000
Claimants wishing to commence an adjudication under the LVD Service are required to use the specific LVD Service application form which can be downloaded from the TeCSA website (www.tecsa.org.uk) and to pay the nomination fee of £350.
Unlike the wide-ranging nature of disputes that can be referred to adjudication under the Construction Act, the new low-value disputes service offered by TeCSA only applies to claims for a specified sum of money and therefore there is no ability to seek declarations from the adjudicator within the LVD scheme.
Simon Tolson, the Honorary President of TeCSA said in a pre-launch interview that the intention behind the scheme is that it “will be more agile and a cost-effective way to determine disputes, and allow small businesses to attain fair, cost effective and transparent decisions on their quarrels.”
This is a noble ambition from TeCSA and a very worthwhile scheme. Hopefully contractors and employers will take up this opportunity to resolve their disputes with greater time and cost-certainty when compared with traditional litigation. Simple low-value disputes caught by this scheme are perfect fodder for adjudication and parties should be using it if they are unable to resolve their dispute through initial negotiation.