Adjudication Construction Act 1996.

Posted on 22/07/2017 · Posted in Adjudication

Adjudication is not a new concept to the construction industry and has been available to disputing parties since the 1970’s, however it was not often used and not as explicitly available. Today adjudication is a widely recognised form of alternative dispute resolution but still primarily used in the construction industry. The Housing Grants, Construction and Regeneration Act (the Construction Act) introduced into the UK in 1996 was the catalyst for this change, and adjudication became a compulsory method for resolving disputes in the construction industry aiming to provide a fast working solution to construction disputes so that parties could quickly resume or continue to work under their contract.

The Act itself (Housing Grants, Construction and Regeneration Act) was introduced to help resolve disputes more quickly and cost efficiently, with the process typically taking place over a 28 day period from the selection of the adjudicator to the final decision. The Act applies to all contracts for ‘construction operations’ and outlines the rights to:

  • be paid in interim, periodic or stage payments
  • be informed of the amount due, or any amounts to be withheld
  • to suspend work in the case of non-payment
  • adjudication

Section 108 of Part II of the 1996 Act gives a party to a construction contract the right to refer a dispute to adjudication, and sets out certain minimum procedural requirements designed to:

  • enable either party to a dispute to refer the matter to an independent party – the adjudicator
  • limit the adjudication process to 28 days (although the parties can agree to extend this period)
  • ensure a ‘pay first, argue later’ mechanism for resolving disputes
  • protect cash-flow during construction projects, ensuring payments are made promptly

The original intention of the Construction Act was that the adjudication process would be a relatively informal one; however it has become a more formal process over time, with disputing parties often delivering detailed submissions including witness statements and even expert reports.

At his best, man is the noblest of all animals; separated from law and justice he is the worst.”

Where a construction contract does not include all the adjudication provisions set out in section 108 of the Construction Act 1996, the Scheme for Construction Contracts (England and Wales) Regulations 1998 (known as ‘the Scheme’) meanwhile provides a fall-back position. For example, a construction contract must outline payment deadlines for each contracted work. Similarly in the instance that a contract incorporates a ‘paid when paid’ clause, the Scheme would also be applied, as such clauses have been outlawed in construction contracts.

The Housing Grants, Construction and Regeneration Act 1996 (‘the 1996 Act’) has since been amended in October 2011. However, the amendments only apply to construction contracts entered into after this date. The amendments are as follows:

  • The new Act requires the payer and or payee to issue payment notices in connection to each work. The payment notice should state the amount due for a contracted work, how that sum has been calculated and a given timescale within which it shall be completed. The aim of which is to increase clarity and certainty as to payment within construction contracts.
  • The paying party will then have to pay whatever has been notified unless a valid notice of intention to pay less has been served or even a payment notice of default for stated reasons. Payment notices should be issued no later than five days after the payment is due.
  • Payment clauses will need to be redrafted to reflect these changes and those on the construction site must be made aware of the importance of sending the correct notice on time and with the correct information. This puts the initiative back in the hands of the payee to be paid correctly and on time.
  • There are now greater sanctions under the 2011 amendment for the failure to declare payment notices. A payee may now issue a ‘payment notice in default’ demanding how much they believe they are owed, and the basis for their calculation, a figure that will be undisputed. This aims to encourage organised and swift payments throughout the construction period and serves as an audit trail of those payments completed and uncompleted.
  • The construction contract may now specify a third party individual who can give notices on behalf of the payer this may be a civil engineer or architect for example.
  • Whilst under the 1996 Construction Act only construction contracts in writing would be considered, the new amendment considers oral contracts too.
  • The new act introduces a ‘slip rule’, this is a specific provision to enable the adjudicator to correct a decision to remove any clerical or typographical errors.

The UK’s Construction Act 1996 was the pioneer legislation for payment protection and mandatory adjudication. It has been imitated in many other countries including Australia, Singapore, New Zealand and Malaysia. It is expected that the Middle East will follow suit.

For directory of articles on adjudication services please click here.

Expert Evidence is a professional firm concentrating on the four main areas of dispute resolution; acting as expert witnesses in financial litigation, mediation, arbitration and adjudication. The firm has a civil, criminal and international practice and has advised in many recent cases. Areas of specialisation include banking, lending, regulation, investment, and tax.

See link: Housing Grants, Construction and Regeneration Act 1996. in full.

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