Adjudication is an increasingly used form of dispute resolution within the construction industry. It involves an independent, third party, considering the factual and legal arguments put forward by each party to a construction contract in order to resolve a dispute that has arisen under the contract.
The right of any party to a construction contract to adjudicate a dispute at any time was put on a statutory footing by the Housing, Grants, Construction and Regeneration Act 1996 (HGCRA). Where there is no term in the construction contract itself which provides the mechanism for the parties to adjudicate any dispute or where the contractual provisions do not comply with the minimum requirements of the HGCRA, the Scheme for Construction Contracts Regulations 1998 (the Statutory Scheme) steps in and provides the rules and procedure for adjudication.
Just as the construction industry has managed to become accustomed to the provisions of the HGCRA, we are now faced with the challenge of a new and even lengthier entitled piece of legislation with which to become familiar. The Local Democracy, Economic Development and Construction Act 2009 (LDEDCA) came into force on 1 October 2011 and enacts certain amendments to the HGCRA. In addition, the Statutory Scheme is amended by an equally lengthy titled regulation, the Scheme for Construction Contracts (England and Wales) Regulations 1998 (Amendment)(England Regulations) 2011 (the Amended Scheme).
As further set out below, the LDEDCA only applies to construction contracts entered into after 1 October 2011, so although we are going to have to learn the new rules, we cannot forget the old ones just yet.
This article sets out when the HGCRA and LDEDCA apply and what changes have been brought about by the LDEDCA.
For a guide as to the adjudication procedure under the Statutory Scheme, including enforcement of adjudicator’s awards, see Helena White‘s Back to Basics article.
Does either Act apply to the contract?
Both Acts only apply to “construction contracts” as defined in section 104 of the HGCRA, which remains unchanged by the LDEDCA. A construction contract is defined as an agreement with a person for the purpose of carrying out, arranging for the carrying out or providing labour for the carrying out of construction operations, whether under a sub-contract or otherwise. “Construction operations” is defined in section 105, which provides a list of included and excluded operations. Section 104(2) provides that certain services of construction professionals in relation to construction operations will also constitute construction contracts. The Acts only apply to construction operations in England and Wales and do not apply to contracts with a residential occupier.
There are, therefore, a number of factors to consider when determining whether or not the contract falls within the Acts. Furthermore, it is important to consider each individual contract relating to any particular project because, for example, a main contractor’s works may fall within one of the exclusions in the Act, but if a subcontractor provides building or painting works, the contract between the main contractor and the subcontractor may fall outside of the exclusions and, therefore, within the Acts1.
Which Act applies?
Whether the HGCRA or the LDEDCA amendments apply to a particular contract, depends on when the construction contract was “entered into”. This is not necessarily a straightforward issue, particularly where parties have operated under a letter of intent or entered into a framework agreement pursuant to which further contracts were subsequently entered into. A court is likely to ask when the parties had the necessary intention to enter into the contract2 and, therefore, the evidence of the parties will be crucial in respect of this issue.
Pre 1 May 1998
The HGCRA applies to construction contracts entered into after 1 May 1998, so contracts entered into before that time are not subject to any statutory adjudication scheme. However, there may be an adjudication scheme written into the contract, which will still apply even if it does not meet the minimum requirements of the HGCRA (set out below), as those requirements are not applicable prior to 1 May 1998.
1 May 1998 – 1 October 2011
Contracts entered into during this period will be governed by the HGCRA in its unamended form, as the LDEDCA does not have retrospective effect3. Pursuant to section 107 of the HGCRA, the contract must be in writing for the Act to apply. The agreement does not need to be signed and may only record what has been agreed or constitute an exchange of correspondence. What is important is that the complete agreement itself must be evidenced in writing in some way4. This requirement was recently considered in the case of Sprunt Ltd v Camden LBC5and is discussed further in the case summary here.
1 October 2011 onwards
The LDEDCA will apply to contracts entered into on or after 1 October 2011 and, somewhat controversially, the LDEDCA has repealed section 107 of the HGCRA so that there is no longer a requirement for there to be an agreement in writing. The referring party still has to identify a construction contract pursuant to section 104 of the HGCRA, which will make careful drafting of the adjudication and referral notices even more important, but there is no longer a requirement that all of the contract must be in writing.
When will the Statutory Scheme apply?
Section 108 provides that a party to a construction contract has the right to refer a dispute to the adjudicator under the contract at any time. A contract is required to contain provisions that:
- enable a party to give notice at any time of his intention to refer a dispute to adjudication;
- provide a timetable with the object of securing the appointment of the adjudicator and referral of the dispute to him within 7 days of such notice;
- require the adjudicator to reach a decision within 28 days of referral or such longer period as is agreed by the parties after the dispute has been referred;
- allow the adjudicator to extend the period of 28 days by up to 14 days, with the consent of the party by whom the dispute was referred;
- impose a duty on the adjudicator to act impartially;
- enable the adjudicator to take the initiative in ascertaining the facts and the law;
- provide that the decision of the adjudicator is binding until the dispute is finally determined by legal proceedings, by arbitration or by agreement; and
- state that the adjudicator is not liable for anything done or omitted in the discharge or purported discharge of his functions as adjudicator unless the act or omission is in bad faith, and that any employee or agent is similarly protected from liability
Subject to the amendment made by the LDEDCA, as set out below, if the construction contract contains all these provisions, then the contractual adjudication scheme will apply. Therefore, it is possible for parties to contract out of the Schemes and set their own procedural rules for adjudication, as long as it meets these minimum standards. However, if one of the matters set out above is either not provided for or conflicts with the provisions set out above, all of the contractual provisions on adjudication will fall away and be replaced with the Statutory Scheme.
It is also important to note that, where the parties are relying on an oral contract as a result of the LDEDCA amendment, the Amended Scheme will always apply if the provisions regarding adjudication are not in writing; an oral agreement to adjudicate, even if it contains all the required provisions, is not sufficient6.
Amendments introduced by the LDEDCA
In addition to the amendments identified above, the LDEDCA and the Amended Scheme provide five further important amendments to the HGCRA and the Statutory Scheme:
- It is now expressly stated that the 28 day time limit within which an adjudicator must give his decision begins to run from the date the referral notice is received by the adjudicator and not the date it is sent by the referring party7.
- The construction contract is now required to have a provision which permits the adjudicator to correct a clerical or typographical error arising from accident or omission. If the contract does not provide this, then the Amended Scheme will apply. Therefore, parties would do well to check and, if necessary, amend their standard terms and conditions to ensure this provision is included from now on if the contract was otherwise compliant with the HGCRA8.
- The LDEDCA inserted section 108A into the HGCRA, which renders any provision as to the costs of an adjudication unenforceable unless:
- It is made in writing, is contained in the construction contract and confers powers on the adjudicator to allocate his fees and expenses; or
- It is made in writing after giving the notice of intention to refer a dispute to adjudication.
- The aim of this provision is to prohibit Tolent clauses, which provide that the cost of an adjudication shall be borne by one party to the dispute, irrespective of the outcome. It is only contractual terms as to the allocation of the adjudicator’s fees that are likely to be enforceable, unless the agreement is made after the referral notice has been sent.
- The adjudicator’s power to require pre-emptory compliance with his decision has been abolished, along with the ancillary provisions enabling the court to enforce the exercise of this power9.
- The LDEDCA also introduced a change to the requisite payment provisions, providing for a new “Pay Less” notice. The workings of the payment provisions require careful study and are a matter we will return to in subsequent newsletters.
The amendments introduced by the LDEDCA aim to iron out some of the issues that have arisen since the introduction of the Statutory Scheme. The expansion of the Statutory Scheme to contracts which are not in writing is likely to further increase the number of disputes referred to adjudication, but this in turn may also increase challenges to the enforcement of adjudicator’s decisions on the basis that no contract was ever actually entered into and, therefore, the adjudicator was without jurisdiction to determine the dispute in the first place. As ever, only time will tell.
 North Midland Construction Plc v AE&E Lentjes UK Ltd (formerly Lurgi (UK) Ltd)  EWHC 1371 (TCC)
 The Atlas Ceiling & Partition Co Ltd v Crowngate Estates (Cheltenham) Ltd 2000 WL 742076
 Sections 147 and 148 of the LDEDCA
 RJT Consulting Engineers v DM Engineers (NI) Limited  EWCA Civ 270
  EWHC 3191 (TCC)
 Section 108 of the HGCRA as amended by Section 139(2) of the LDEDCA
 See paragraphs 7(3) and 19(1) of the New Scheme for Construction Contracts (England and Wales) Regulations 1998 (Amendment)(England Regulations) 2011
 Section 140 of the LDEDCA inserted section 108(3A) into the HGCRA
 Paragraphs 23 and 24 of Part 1 to the Scheme
We offer a Fixed Fee Adjudication Scheme – if you would like to find out more about this, please contact our Practice Management Team or read our Fixed Fee Adjudication Scheme flyer.