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Adjudication for low value construction disputes

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The TECSA low cost option for Adjudication is excellent

Adjudication for low value construction disputes

This note aims to discuss the options for resolving low value construction disputes through affordable adjudication.

The Housing Grants, Construction and Regeneration Act 1996, commonly referred to the Construction Act, applies no matter the size of the dispute.

Background

A few months ago, I wrote a blog discussing whether construction disputes were best resolved by adjudication or litigation. You can read this blog here.

 In my blog, I found that construction disputes in county court would benefit from adjudication. I based my reasoning on the current delays within the county court.

Getting to trial in 18 months is only part of the problem.

It often takes 6 months for a case to move from the central processing court to a regional court.” These delays benefit the reluctant debtor but do not help the contractor owed money.

The long delays are a factor. The new fixed costs system is another factor.

The possibility of the judge lacking experience in construction law is also a factor. In my view, these factors make a strong case for adjudication.

The low value construction dispute – is adjudication still viable?

This question is one that concerns many involved with construction disputes.

The purpose of adjudication was to reach a reasoned enforceable decision at a fair cost. In the past, it was hard to resolve small construction disagreements when the Adjudicator’s fees seemed too high.

In the last twelve years, prior to June 2023, we had only acted on a small number of sub £30,000 construction disputes. The contractors were our clients.

They grew tired of not receiving payment. They preferred to resolve the issue through adjudication. They did not want to go to court.

Within our low value disputes, half settled immediately after we issued the notice of adjudication. The other cases were resolved through adjudication on a specific issue. This process often required quick decisions. As a result, we were able to recover money for our clients.

Does pursuing the low value adjudication make commercial sense? I believe so. Going to court would have been expensive, and starting  insolvency proceedings was not an option. So, the decision was to either forget the debt or settle it through adjudication.

The problem however with low value adjudication is the exposure to costs.

First there is the issue of representative costs, which can usually be fixed or capped to provide cost certainty.

Second, and of more concern, is the issue of the Adjudicator’s costs. Although we can reliably predict the chances of success, we cannot guarantee success. The exposure to the risk of the Adjudicator’s costs is, I suggest, the biggest disincentive to Adjudicate.

How to recover a sub-£20,000 debt – is adjudication viable?

We were recently instructed to recover a c.£15,000 debt.

The subcontractor made a valid application for payment. No certificate in response was issued. No pay-less notice was issued. There was no dispute on valuation.

The application had not been paid because there was a potential contra-charge due to defects, albeit those defects had not been previously notified and had not been the subject of a pay-less notice. Because of case law, the debt was clearly owed to our client. For a discussion on defects and defect liability periods see our note here.

We first attempted to recover the debt by correspondence. There was no substantive response to our correspondence. The subcontractor could pursue their application for payment through a smash and grab adjudication. We were however concerned that the risk of an adverse adjudicator’s decision could be disproportionate.

It was necessary for us to consider the available rules relating to adjudication for low value construction disputes. In summary these include:

  • TECSA Low Value Dispute (LVD) Adjudication Service – for disputes up to £100,000
  • CIC Low Value Disputes Adjudication – for disputes up to £100,000
  • RICS Low Value Dispute Construction Adjudication Service –for disputes up to £50,000
  • The RICS Summary Adjudication Procedure– for disputes up to £20,000

 

TECSA Low Value Dispute (LVD) Adjudication Service

TECSA (Technology and Construction Solicitor’s Association) is an association whose members are specialists in construction disputes and contracts – see the TECSA website here.

TECSA operates a set of rules for disputes below £100,000, pursuant to which their panel adjudicators agree to limit their costs. The TECSA guidance for low value disputes can be found here.

 The values of the amount being claimed and the Adjudicator’s fee caps are set out below.

Claim Value Fee Cap

Up to £10,000- £2,000

£10,001 to £25,000- £2,500

£25,001 to £50,000 -£3,500

£50,001 to £75,000 -£4,500

£75,001 to £100,000- £5,000

Note that the claim value excludes VAT and interest. Therefore, for example, a claim for £100,000 plus VAT and interest would qualify.

The costs for a construction contract dispute under £25,000 are extremely competitive. I do not believe I have ever seen an Adjudicator charge under £2,500.

I recommend using the TECSA low value dispute procedure for small disputes. Contractors can get an experienced construction professional as an adjudicator at a fixed low cost.

To be able to use the TECSA Low Value Dispute (LVD) Adjudication Service, the construction contract must either name TECSA as the Adjudicator Nomination Body or name no other Adjudicator’s Nomination Body.

In contracts prepared by RICS Surveyors or RIBA Architects, it would be unusual for TECSA to be named as the adjudicator nomination body (ANB).

We wanted TECSA to handle our dispute under £15,000. This is because Matthew Dillon from MJD Solicitors in Brentwood, Essex is a member of TECSA. Smash and grab adjudications involve English law principles. However, as TECSA was not specified in the contract as the ANB, we were unable to use TECSA.

 

CIC Low Value Disputes Adjudication

The CIC, construction industry council, operate a procedure for low value adjudication, which can be found here.

The CIC procedure is called adjudication procedure LVD MAP – Low Value Disputes Model Adjudication Procedure. 

The point of the procedure is to create a streamlined procedure for low value disputes where the fee charged by the Adjudicator is linked to the value of the dispute.

As with all adjudication in construction, the referring party initially issues a notice of adjudication. The referring party then refer a dispute. The adjudicator’s decision is binding and is issued within 28 days of the referral. As can be seen the adjudication process is simple was for resolving disputes.

As with the TECSA low value procedure, the CIC LVD MAP applies to disputes with a value less than £100,000. The following provisions in the CIC LVD MAP will be noted:

The Adjudicator’s fees exclusive of VAT will be capped as set out below.

Dispute value    Adjudicator’s fee

Up to £10,000 -£2,000

£10,001 to £25,000- £2,500

£25,001 to £50,000 -£3,500

£50,001 to £75,000 -£4,500

£75,001 to £100,000 -£5,000

 

The scale of fees for the Adjudicator set out in this section are capped amounts and are not fixed fees.

The costs for a construction contract dispute are again extremely competitive. I doubt the Adjudicator would apply a fee lower than the capped rate, even though these costs are capped and not fixed.

To be able to use the CIC LVD MAP Adjudication Service, the construction contract must either name CIC as the Adjudicator’s Nomination Body or name no other Adjudicator’s Nomination Body. In contracts prepared by RICS Surveyors or RIBA Architects, it would, as above, be unusual for CIC to be named as the Adjudicator Nomination Body.

If CIC is named as the Adjudicator Nomination Body, then the LVD MAP will only be used (assuming it is not mentioned in the contract) where the parties have agreed to use it, or the Adjudicator decides to use it upon request from a party. I believe the latter is unlikely to happen unless the Adjudicator is confident that he can reach his decision within the cap.

The CIC Low Value Dispute Procedure is not commonly used in construction contracts that involve the CIC. Adjudicator Nomination Body.

However, the fact that the CIC is not named as the Adjudicator Nomination Body may not be fatal in those circumstances where the RICS is named as the Adjudicator’s Nomination Body.

 

The RICS Low Value Dispute Construction Adjudication Service

The RICS launched their low value adjudication service in 2020 with the following announcement:

“RICS has begun providing a low value construction adjudication service to give UK SMEs a simple and cost-effective procedure that will make solving disputes more accessible and quicker for lower value claims. Something that is badly needed in these challenging times to free up SME cash flow.

The RICS service will operate in accordance with the ground-breaking CIC Low Value Disputes Model Adjudication Procedure (LVD MAP) procedure*.

It is clear from the RICS website that they are essentially “piggy backing” off the CIC low value scheme for disputes less than £100,000.

When applying for a RICS adjudicator, a party can ask to use the CIC LVD MAP. This can be done because the procedure follows the Scheme. I think the main issue is that the Adjudicator will only use the CIC LVD MAP if both parties agree.

The RICS Summary Adjudication Procedure

I was really interested in the RICS Adjudication procedure for small disputes (up to £20,000) a few months ago. The RICS webpage relevant to this page can be found here.

There is also a useful set of FAQs on what the RICS call the Summary Adjudication Procedure. In these FAQs, the RICS clarifies the distinction between their low value adjudication service and their summary adjudication procedure:

The Adjudicator is required to reach their decision within 14 days from the date they receive the referral. Note this is half of the time under the Scheme.

To achieve this timetable, the Responding Party has 7 days to respond to the Referral and the Referring Party has 3 days to issue a Reply. The Adjudicator then has to issue his decision in a further 4 days.

The decision issued by the Adjudicator will be only 1 page long and only include outline reasons.

What does the RICS Summary Adjudication Procedure cost?

The cost of applying to the RICS to nominate an Adjudicator id £300 including Vat (compared to £425 under the usual rules).

The costs of the Adjudicator are fixed at £1,000. The fee must be paid before the decision is issued, by the Referring Party, and failure to do so means the Adjudication will proceed under the Scheme and the £1,000 cap will no longer apply.

The £1,000 fee will also be exceeded if the Adjudication decision takes longer than 14 days. The RICS say. 

If the adjudicator is prevented from issuing his decision due to the fault one or both parties, then the adjudicator can continue and make a decision within 28 days. They can allocate any extra fees to the party or both parties, who caused the delay. If both parties and the adjudicator decide the dispute warrants more than 14 days, they can agree how much more time is needed and how much additional fees should be paid. If the reason the decision is not made in 14 days lies with the adjudicator, then they are not able to charge any additional fees”.

I suggest also that if the Adjudicator when acting decided the matter is not suitable for summary adjudication he will resign.

At first glance, the RICS Summary Adjudication process is a great way to quickly and affordably resolve disputes through adjudication.

 

Our experience of the RICS Summary Adjudication procedure

In my c.£15,000 dispute, I advised my client to give the RICS summary procedure a try. I was concerned whether it really would work. Could a legally binding decision be issued in 14 days?

I was instructed on a very simple “smash and grab” adjudication dispute. I condensed the arguments to around 6 or 7 pages and the supporting documentation to less than 10 pages. I was confident the Adjudicator would agree with the case that I was advancing.

I didn’t expect the Adjudicator to only proceed with the summary adjudication procedure if both parties agreed. It was not mentioned in the summary procedure FAQs.

 It is understandable why a decision could be deemed unenforceable if a party did not agree to the summary procedure. This is particularly true if a party wanted to contest a small unfavorable decision. This is especially true if a party was inclined to challenge a minor adverse decision.

I never had the chance to test out the RICS Summary Adjudication procedure beyond just the Referral Notice. The Responding Party upon receipt of the Referral decided to settle the dispute, presumably realising that it had no defence.

 

Conclusion on adjudication for low value construction disputes

The steps taken by the RICS, TECSA and CIC to provide a procedure for low value adjudication disputes has to be a very welcome.

With the substantial delays in the county courts, I suggest these procedures provide a real alternative for contractors to recover entitlements.

Of the procedures available, I believe TECSA provides the most credible route for low value adjudication because use of the procedure is not conditional upon consent of the Responding Party.

The reality is that the Responding Party may have any reasons not to consent to a low value procedure, and whilst grounds for objection may be legitimate, they may also be tactical. 

Where the contract is either silent on the Adjudicator Nominating Body or nominates TECSA, I would, in a low value dispute, be minded to apply to TECSA to nominate an adjudicator, save perhaps in the circumstances when I required a quantity surveyor adjudicator.

This brings me to an important note on contract negotiation. MJD Solicitors frequently advise and negotiate on construction contracts. See our webpage for details of the type of work we are engaged in.

When subcontracts are being negotiated, the subcontractor should consider what the likely value of a dispute with the contractor is likely to be.

If the dispute is likely to have a value of less than £100,000, then there is substantial merit in ensuring the contract incorporates one of the low value adjudication schemes. By agreeing to refer low value adjudication disputes to one of the designated low-value adjudication schemes, the subcontractor is ensuring timely and cost effective access to dispute resolution.

MJD Solicitors frequently act in adjudication disputes. We acted in disputes from £10,000 to £2million. We can guide contractors, subcontractors, employers and professionals on the best route to make a recovery.

To discuss further please contact Matthew Dillon of MJD Solicitors on 01277 280761

Matthew Dillon LLB, Solicitor, MCIArb

MJD Solicitors

24 April 202

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