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New adjudication process for a brave new world

Construction litigation specialist Katherine Sibley looks at a recent new procedure for streamlining disputes valued at less than £50,000. The new system makes it easier for small businesses to access adjudication in such cases.

On 1 May 2020 the Construction Industry Council (CIC) launched a Low Value Disputes Model Adjudication Procedure (MAP).  The MAP will provide a streamlined approach for low-value disputes where claims are valued at £50,000 or less and the issues are relatively uncomplicated.  The MAP has been introduced in response to growing concerns within the construction industry that adjudication is inaccessible to SMEs due to its prohibitive costs.

The old way

Adjudication was first introduced by the Housing Grants Construction & Regeneration Act 1996 (Construction Act) with the express aim of providing a quick and cost effective procedure for resolving construction disputes in order to help cashflow within the industry and to prevent the big contractors from forcing smaller subcontractors into insolvency by withholding payments, a previously common practice.

Adjudication quickly gained popularity. However, as the popularity increased, so did the legal costs.  Instead of being a quick rough justice procedure, increasingly complex disputes have been referred to adjudication leading to the procedure becoming more sophisticated with parties submitting complex witness evidence, expert reports and a rise in mini hearings which has pushed up the cost.

The difference between court and adjudication proceedings is that the parties bear their own costs in adjudication with the Adjudicator having the power to apportion his fees as he sees fit.  Over recent years the costs involved in running an adjudication have become disproportionate to the amounts in dispute.

Average legal fees for pursuing or defending an adjudication range from £10,000 – £20,000 with the average Adjudicator’s costs being around £10,000.  Clearly it is disproportionate to spend £10,000 pursuing a £20,000 debt coupled with the risk of having to pay some or all of the Adjudicator’s fees on top.

Another nuance of adjudication is that the parties are joint and severally liable for the Adjudicator’s fees. Thus, if the defendant/responding party goes bust then the claimant recovers nothing and has to pay not only his own legal fees but also the Adjudicator’s fees.  This has left lots of clients reluctant to use adjudication. Better to go to court where for claims over £10,000 there is some costs protection.

What does the new scheme mean for adjudication?

This is where the MAP steps in. The new scheme aimed at making adjudication more cost effective and thus more accessible. This will be achieved by linking the Adjudicator’s fee to the amount claimed in order to increase certainty and clarity as to how much the Adjudicator will need to be paid.

This will mean that parties will know before proceeding with adjudication how much the Adjudicator will charge and thus the parties can carry out a more accurate cost risk. The MAP will provide an outline timetable for the procedural stages of adjudication with the intention of creating a flexible and simple approach to the process.

This, in addition to the increased transparency regarding costs, may reduce reliance on professional representation and improve access to dispute resolution for those who previously had been deterred by the complexity and cost. A further objective of the procedure is to enable newly qualified Adjudicators to gain experience in deciding low value disputes.

The publication of the new procedure is especially welcomed in the current period of economic uncertainty.  The new procedure offers an alternative form of dispute resolution to SMEs.

The more sophisticated contractors may be able use to procedure without legal assistance and if lawyers, are needed, then the costs will be significantly reduced due to the simpler procedure.  It is hoped that this will help SMEs to free up cash flow in these challenging times.  Only time will tell whether the procedure is taken up in practice.

For more advice on the procedure or any matters concerning construction disputes please contact Katherine Sibley.