Construction Act 2009 – What you need to know – Part 2 – Adjudication

The Local Democracy, Economic Development and Construction Act 2009 finally came into force on the 1^st October 2011; so, by now, it should be on the radar of everybody contracting within the construction industry, whether the employer, contractor or sub-contractor.

The Construction Act makes a number of changes to the operation of construction contracts; including important amendments to the adjudication provisions set out in sections 107 and 108 of the Housing Grants, Construction and Regeneration Act 1996.

Key Features:-

1. It will no longer be necessary for Construction Contracts to be in writing.  This alteration means that it will be possible to refer to adjudication disputes relating to entirely oral contracts.  It will, however, be necessary for the referring party to prove both the existence of an oral contract and its specific terms.
2. Any provision of a Construction Contract which concerns the allocation between the parties of costs relating to the adjudication will be ineffective unless:

a)      it is made in writing, is contained in the construction contract and confers power on the adjudicator to allocate his fees and expenses as between the parties, or

b)      it is made in writing after the giving of notice of intention to refer the dispute to adjudication.

1. A ‘slip rule’ has been added to the legislation, giving adjudicators specific powers to correct clerical or typographical errors.  This amendment should avoid the situation, which has previously arisen, where one party has been stuck with the consequences of obvious arithmetical errors within the decision.

Points to Remember:-

1. Although it will now be possible to adjudicate purely oral contracts, it is our strong recommendation to record the terms of any agreement in writing.  Oral contracts will always be subject to the vagaries of judicial interpretation (whether by an adjudicator or a court) and therefore lack certainty, which is a key ingredient in the determination of any dispute.  Parties referring disputes arising from purely oral contracts will therefore almost always find themselves entering murky and dangerous waters.

a)      There remains significant debate about the somewhat ambiguous wording of the costs provision at the new section 108A.  It seems clear that the intention of the draftsman was to prevent all pre-referral contractual provisions regarding costs, except for those that provided solely for the adjudicator to allocate his fees and expenses between the parties.  This provision was designed to prevent ‘Tolent’ clauses that required all of the costs of the adjudication to be bourne by one party; however, there is uncertainty at present as to whether the wording of the Construction Act 2009 actually prohibits them.  It will be interesting to observe how the Courts interpret this section in practice.

b)      It will be possible for parties to agree the allocation of costs after a notice of intention to refer has been given, but it seems rather unlikely that such agreements will actually occur.

and finally, 3.

Adjudicators are only human and are as susceptible to error as anyone, therefore, decisions should always be considered extremely carefully by both successful and unsuccessful parties, in order to minimise the likelihood of further costs being incurred following adjudication.

For information on Payments in Construction go to: The Construction Act 2009 – What You Need To Know – Part 1 – Payment

If you are concerned or want to learn how ORJ Law can help you and your Construction business – Please contact Mike Smyth on mike.smyth@orj.co.uk or call him on 01785 223410. To view our website please go to Construction Adjudication