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Tools for better cash flow - Adjudication

Published in the FSB Business Network magazine in August 2014

Due to the many variables in construction projects disputes are a regular problem. The most common subject for dispute is money although it can often be; time, quality, the contract terms or many other related issues.

When disputes arise, particularly in regard to money, they can be a worry, they can divert resources and crucially they have the potential to affect cash flow.

When a dispute does arise it can look like a long and costly process to resolve and without knowledge or good advice about the tools available to solve the dispute the route to a successful outcome can appear remote and daunting.

In order to help parties to construction contracts resolve disputes quickly and cost effectively the Government of the day introduced in 1998 the Housing Grants Construction and Regeneration Act 1996 [‘the Act’]. The Act provides a statutory right to be able to adjudicate disputes in the construction industry so that since then a party to a construction contract, as defined by the Act, can adjudicate a dispute ‘at any time’, this means that once a dispute has crystallised adjudication can be commenced immediately and nothing written into the contract that seeks to remove or impede the entitlement would be effective.

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The Act was reviewed and amended in 2009 when the Government introduced the Local Democracy, Economic Development and Construction Act 2009 [‘the New Act’] so all parties to construction contracts do not need to despair any more when a dispute arises. Action can be taken immediately, without the need for the other party to cooperate and the process from the time of the referral of the dispute to the Adjudicator to its resolution is normally just 28 days.

To comply with the New Act all construction contracts must make particular provisions for adjudication, if they don’t, the New Act provides the provisions known as the Scheme for Construction Contracts [England and Wales] Regulations 1998 (Amendment)(England) Regulations 2011 [‘the Scheme’].

Once a dispute has crystallised an adjudication can be commenced. Adjudication is commenced when one party serves a ‘Notice of Adjudication’ [‘NoA’] on the other setting out the nature of the dispute and the redress sought from the Adjudicator. Immediately following the NoA a nominating body is requested to appoint an Adjudicator.

Within 7 days of the NoA the Adjudicator must be appointed and the party’s case must have been issued to the Adjudicator and the other party. Normally, 28 days after the Referral of the dispute the Adjudicator issues a Decision that is binding on the parties unless otherwise agreed or taken to court or arbitration.

The Advantages

Used wisely adjudication can be an extremely effective way to resolve disputes. Over other methods it is quick, over in 28 days; single issues can be referred not every aspect of a dispute and parties are responsible for their own costs so there is no risk of incurring the other party’s costs, a significant issue in litigation.

Adjudication can solve disputes cost effectively and speedily and can prevent the dispute affecting the cash flow of the business.

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