Adjudication is a speedy dispute resolution process available to parties to a construction contract. The process generally allows the parties to get an enforceable decision in a timeframe of just under two months. It has a strict timetable that needs to be complied with and is a right given by legislation through the Housing Grants, Construction and Regeneration Act 1996 (the “HGCRA”) – meaning that a contract doesn’t need to refer to a right to adjudicate. The contract simply needs to be a type of contract for which the right to adjudicate is available and if it is, the right will be implied through the HGCRA.
Generally the industry believed that collateral warranties did not allow for a right to adjudicate. The case of Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd  BLR 589 has confirmed that may not be the case.
The relevant warranty was given by Laing O’Rourke to Parkwood, the tenants of a swimming and leisure facility. The warranty was provided prior to practical completion being certified. When a dispute later arose regarding the defective design of the construction works the tenant sought a declaration that the collateral warranty was a construction contract for the purposes of Part II of the HGCRA. If that was found to be the case, then the collateral warranty would have implied into it a right to refer the dispute to adjudication.
Surprisingly, the courts granted this declaration, coming to the decision on the basis of:
(1)the construction of the words in the collateral warranty, in particular the words in Parkwood’s collateral warranty which stated that the contractor “warranted, acknowledged and undertook that it had carried out and shall carry out and complete the works in accordance with the contract”; and
(2)timing– Parkwood’s collateral warranty was entered into before practical completion, and the courts drew a distinction between those collateral warranties which can be construed as a collateral warranty to carry out future works (e.g. before practical completion) and those collateral warranties that warranted completed works (e.g. after practical completion).
This case is likely to have wide reaching consequences in the construction industry. Some commentators have noted that it was never parliament’s intention to allow for adjudication to be used in this way. As a result, it is likely that many warrantors may become increasing reluctant to provide collateral warranties or at least incur greater time and expense in negotiating their terms.