Softly, softly approach
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Property Update — February 2014: what is the status of an adjudicator’s decision before court judgment or an award by an arbitrator?
28 February 2014
Sir Michael Latham, when delivering a paper to the Society of Construction Law, said that if only one recommendation of his report could be implemented, he would choose adjudication.
Latham recommends that adjudication should become the normal method of dispute resolution. This would in itself be revolutionary for a construction industry used to spending £250 million or 6 per cent of its turnover per annum on resolving disputes by the more traditional methods of arbitration or litigation.
Instead Latham advocates the appointment of a neutral adjudicator in the contract.
The adjudicator will be called in to deal with disputes as and when they arise. The adjudicator's award will be implemented immediately but the aggrieved party will have the right to arbitrate or litigate after completion.
The advantages of adjudication over traditional methods include:
- The parties at this stage will have an interest in solving disputes - the client wants his building completed and the contractor wants to be paid.
- The parties have not had time to become entrenched.
- The cost of resolving the dispute is minimal.
Philosophically and commercially this system is indisputably better and more cost- effective than either litigation or arbitration.
An obvious saving is legal costs; another is management time spent by the client in arbitration or litigation, the cost of which is often underestimated.
Also, it is possible to preserve on-going commercial relationships. The construction world is small and today's adversary could easily be tomorrow's partner.
Is such a metamorphosis possible however in an industry which has a reputation for conflict? Even if the human nature factor is subtracted from the equation, construction disputes can be horrendously complex. "Untriable" was the verdict uttered by the late Judge John Newey QC in respect of one particular case. Construction contracts are often lengthy and badly drafted and even the most mundane points can be difficult to resolve.
In large cases there can be thousands of documents on many different points. Contract periods are often much longer than in other commercial contracts. There are many different entities involved, for example, building owners, contractors, sub-contractors, consultants, manufacturers and suppliers. This increases the scope for disagreement during the contract period.
Large sums of money are at stake and there are always cash flow pressures. It is not unknown for contractors to price a job at less than cost in the hope of making up the deficiency through claims submitted after the job is completed. Contractors make profits at the expense of sub-contractors, an attitude which has permeated the industry.
One of the results of a survey carried out by a national contracting firm was quoted by Latham as follows: "It is an industry problem. Where we are better, so are our competitors. Where we score poorly, so do others. Inherently, the industry "macho" culture, where we reward crisis management and 'screw the subbie' is at fault."
The construction industry is a fertile breeding ground for disputes and often the inequality of bargaining power rather than the actual merits of the case dictates the terms of any settlement. However, people may be more prepared to compromise if they believe it is in their interest.
Compromise is the essence of ADR, certainly in mediation where the parties find their own solution to the dispute - a solution with which they can live. Even in adjudication there is an element of compromise. Adjudication is non-binding and therefore the option is always open to an aggrieved party to litigate or arbitrate.
It is possible that a system of adjudication will work if sufficient authority is placed in the hands of the adjudicator, by the contract and with the support and backing of the courts. However, is it not inevitable in many cases that one or other party will disagree with the decision of the adjudicator and be inclined to follow the traditional method of arbitration or litigation?
Further, is it feasible to expect that there will be a radical culture change in the construction industry favouring partnering and adjudication? It's worth giving it a chance.
Andrea Burns is a partner at Orchard.