In the latest alternative dispute resolution series for Construction Law, we examine new initiatives to cap costs for lower value adjudications.

When introduced in the mid-nineties, adjudication was heralded as an alternative to cumbersome and expensive litigation and arbitration processes which would help improve cash flow. The industry embraced the new process and accepted occasional rough justice in return for speedy dispute resolution and faster payment. Adjudication is now a key tool in resolving construction disputes. But not for all. Parties are increasingly referring more and more complex disputes to adjudicators. Timetables have become longer, adjudicators are having to spend more time on disputes and, consequently, their fees have increased: adjudication has become financially and practically unviable for many parties on smaller value projects. Acknowledging this state of affairs, the Technology and Construction Solicitors’ Association (TECSA) has launched a six-month pilot of a new, low value disputes (LVD) adjudication service. Applying to disputes arising out of construction contracts or contracts containing adjudication rules under the Construction Act’s Adjudication Scheme, the LVD service:

  • provides for a £350 adjudicator nomination fee;
  • caps adjudicators’ fees and expenses on a sliding scale from £2,000 (for claims under £10,000) to £5,000 (for claims between £75,000 and £100,000). These fees exclude VAT and interest;
  • does not require the referring party to seek the other party’s agreement;
  • is restricted to claims between two persons for quantified sums;
  • offers scope for use on construction contracts not necessarily covered by the Construction Act; and
  • allows the adjudicator to resign if a party understates the value of its claim. Alternatively, the adjudicator can continue with the higher value claim and, if the parties agree, claim their normal fees (subject to a £2,000 daily cap plus VAT).

Ensuring the claim is worth less than £100,000 is crucial to securing the adjudicator fee cap. Referring parties should therefore evaluate the claim as accurately as possible at the outset and, if in doubt, seek legal advice. However, be aware that the LVD service caps only the adjudicator’s fees – not the legal fees. Parties should take time, therefore, to understand lawyers’ and costs consultants’ charging mechanisms and budget for their fees.

Reaction to the LVD service pilot

Initial reaction to the pilot appears good. The benefits include more costs certainty and adjudication being accessible to a wider pool of unpaid SMEs. Several TECSA adjudicators have already publicised their willingness to accept the LVD service cap on fees. These adjudicators are evidencing some goodwill in taking on these disputes for lower fees than normal, but they are not offering an open-ended service. Parties should expect adjudicators to manage the process efficiently with strict timetables and restrictions on the number of submissions and evidence. While this approach could mean rough justice for some, parties should take comfort from the fact that the quality of TECSA adjudicators is high and their decisions will still be subject to natural justice. Smaller disputes are not always straightforward and some adjudications will involve complex issues. Adjudicators will not be able to withdraw on the basis that the dispute is more complex than anticipated but they might be more willing to try innovative processes to achieve a resolution within the cost and time constraints. Who knows, some of the resulting innovation might resonate with TCC judges! TECSA will review the pilot LVD service towards the end of 2019.

As we write, the Construction Industry Council, in conjunction with other bodies, is consulting on another proposed low value disputes adjudication scheme with a cap on adjudicators’ fees of £6,000 for claims of less than £50,000 (or more should the parties agree). An alternative scheme will be equally welcome and should improve choice as well as access to adjudication and justice for smaller businesses.

This article was first published by Construction Law on August 5, 2019.