Construction Adjudication: The emergence of Low Value Dispute Resolution Schemes

Adjudication is the cornerstone of dispute resolution in the construction industry and as a concept has been phenomenally successful. Jurisdictions outside the UK, including Canada, Australia, New Zealand, Singapore, Malaysia and the Republic of Ireland have adopted similar processes in their construction industries. In December 2019 the Annual Report of the Adjudication Society reported a continuing trend of year-on-year growth in the number of referrals to adjudication through adjudicator nominating bodies (ANBs) in the UK.

Yet, despite its success, many argue that adjudication – once hailed as a “fast and dirty” process to resolve simple cashflow issues – has evolved into a beast more akin to arbitration or even court proceedings. While adjudication remains one of the fastest methods to resolve disputes, the types of disputes being referred to adjudication have progressed from straight forward non-payment, to complex delay and disruption, design defects, complicated contractual interpretation, final account disputes and even professional negligence claims.

This means that what was intended to be a quick, inexpensive 28 day process now frequently includes lengthy submissions, technical evidence, expert opinions, site inspections and even meetings which closely resemble hearings.

There is considerable evidence from the construction industry that this, together with the associated costs is acting as a disincentive to parties to use adjudication to resolve low value disputes. So in an attempt to address this and increase access to low cost dispute resolution, a number of industry bodies have developed services specifically targeted at low value claims.

This article looks at four of these services:

• The Low Value Dispute Adjudication Service provided by TeCSA;
• The Low-Value Dispute Model Adjudication Procedure provided by CIC;
• The Fast Track Adjudication Service offered by RICS; and
• The Pandemic Business Dispute Resolution Service offered by CIArb and CEDR.

TeSCA’s Low Value Dispute Adjudication Service

The Technology and Construction Solicitors’ Association (TeCSA) launched a low value disputes adjudication service in June 2019. Following a successful trial period, it became permanent in January 2020. It is available for straight forward claims for up to GBP100,000. The adjudicator’s fees are capped at a rate depending on the amount in dispute (between GBP2,000 and GBP5,000). TeCSA charges a reduced LVD nomination fee of GBP250. All the adjudicators on the LVD panel are also on TeCSA’s full adjudication panel, so meet TeCSA’s CDP and assessment requirements.

Because it only limits the fees charged by the adjudicator, the LVD service doesn’t require the responding party’s consent. Provided that no other ANB is specified in the relevant contract, the referring party simply applies to TeCSA for the nomination of an adjudicator using the specified form.

CIC’s LVD MAP

On 1 May 2020, the Construction Industry Council in collaboration with RICS launched a low-value dispute model adjudication procedure (LVD MAP). It applies to disputes with a value of less than GBP50,000 and where the issues are not complex. Any ANB which supports the procedure can be asked to select an adjudicator. The adjudicator’s fees are capped at between GBP2,000 and GBP6,000 depending on the value of the dispute.

The issues that ought to be referred to LVD MAP should be “clear cut and not complicated by legal / technical questions” and adjudications will be conducted on a documents only basis unless the adjudicator directs otherwise.

For the LVD MAP to apply, the parties must either have agreed in the construction contract to refer disputes that meet the relevant criteria to the LVD MAP, or have agreed to do so after the dispute arose.

The LVD MAP may be unsuitable are where:

• The amount claimed is greater than GBP50,000 (unless otherwise agreed);
• No financial remedy is sought;
• The documents exceed more than one A4 lever arch file;
• The dispute is unsuitable for a documents-only decision;
• One party does not consent;
• The terms of the contract are not easily discernible; or
• There are jurisdictional challenges which cannot be dealt with in two hours of the adjudicator’s time.

Like traditional adjudication, this may result in jurisdictional challenges, though the hope is that parties will take a sensible approach and only raise such challenges when appropriate.

RICS – 14 Day Adjudication

On 21 April 2020, the Royal Institution of Chartered Surveyors (RICS) launched a 14-day adjudication service which is designed to assist construction companies to get quick decisions on disputes that are “relatively uncomplicated” and are valued at GBP20,000 or less. The adjudicator’s fee is capped at GBP1,000, and the decision is given in summary form with just the outline reasons set out. If either party wants the full reasoning of the adjudicator, they can elect to have this produced at their own expense.

Similar to the LVD MAP, this service will apply if (i) the referring party has applied for the matter to be dealt with under the procedure; (ii) the adjudicator considers the dispute suitable for determination under the procedure; and (iii) the responding party doesn’t object.

This service was set to run until the end of July 2020 in the first instance.

Pandemic Business Dispute Resolution Service

The Chartered Institute of Arbitrators (CIArb), together with the Centre for Effective Dispute Resolution (CEDR) have put together a fast track dispute resolution service for businesses with claims that have arisen as a result of the recent pandemic. The service offers facilitators, mediators and fast track arbitration, at a fixed cost and online.

The service is suitable for disputes with a value of between GBP5,000 and GBP250,000. The cost differs depending on whether parties opt for mediation or arbitration. Arbitration costs GBP1,250 plus VAT per party, takes 90 days or less and does not include a hearing or site visit.

COVID-19 and dispute resolution

In the present economic climate, with projects in serious delay, the industry needs options that can resolve disputes as quickly and cost-effectively as possible whilst avoiding unnecessary expense.

In regular adjudication parties are not liable for the costs of their opponent, and to some extent they can control their own legal costs. These recent initiatives, which enable parties to retain greater control of the timetable and of adjudicators’ costs, look likely to be of huge benefit to the industry in the wake of COVID-19.

There are signs that the schemes for low value disputes are proving popular: in the last 12 months TeCSA has appointed 122 adjudicators using its LVD service.Use of the schemes is encouraged by recent Cabinet Office guidance on responsible contractual behaviour (dated 7 May 2020, updated on 30 June) which includes reference to the LVD Map and the Pandemic Business Disputes Service, and acknowledges that there are other fast track schemes.

Of course, conventional adjudication remains available for complex, high-value claims which require expert evidence and lengthy submissions, and its use is also encouraged (were encouragement needed), by the Cabinet Office Guidance.