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30th October 2023

Adjudication in the Construction Industry

Amanda Chow

Amanda Chow

Ajudication in the Construction Industry

Back in the 90s, contractors could only threaten court proceedings if employers withheld payments. Getting a case to the court takes a long time.

Employers often did not need to pay as they could simply watch the contractors go bust before they were able to get to a court hearing. To address this, The Housing Grants, Construction and Regeneration Act 1996 (“the Construction Act”) was introduced in 1996 which made adjudication compulsory for resolving disputes in the construction industry.

Adjudication is a dispute resolution mechanism used to assist contractors with cash-flow during a construction project. It allows them to swiftly enforce an outstanding payment and continue the project. The dispute holding up the completion of contracts can be dealt with by an adjudicator who gives a quick decision based on which both parties can move on.

How Does it Work?

Adjudication is mandatory under a construction contract and dispute can be referred ‘at any time’. The adjudicator is required to provide the decision within 28 days. It can be extended by 14 days by referring party unilaterally without the consent of the other party. If it is extended to take over 42 days, both sides need to agree.

Pay Now, Argue Later

If the employer doesn’t agree with the decision, they must still pay the contractor first. It would now be up to the employer to go through lengthy court or arbitration proceedings to get a different outcome.

If the employer doesn’t agree with the decision, they must still pay the contractor first. If the employer refuses to pay, the adjudicator’s decision can be enforced in the Technology and Construction Court.

Smash & Grab Adjudication

What is it? It means when a contractor applies for a payment but there is no response for a certain period of time, then the contractor will be automatically entitled to receive that payment regardless of any defence the employer may otherwise have, such as defective works.

Can the Employer Challenge the Sum Applied For?

There are two chances for the employer to say they want to pay less.

Section 110A (1) of the Construction Act says that a payment notice needs to be given not later than 5 days after the payment due date.

If the employer fails to give a payment notice, the contractor’s application for payment will become a default payment notice and the sum set out in it must be paid by the final date for payment. Section 111(3) of the Act allows the employer to pay less than the notified sum provided that they give a pay less notice.

If the employer fails to do these things, the contractor would be entitled to get the money they have asked for. It is all about shifting the control of the money to the contractor so that they will not go bust and can use the money to carry on the project.