The new Construction Act (the "Act") implements a mandatory fast-track dispute resolution process designed to get cash flowing more quickly on the projects and to reduce the cost of large and lengthy disputes.
This article sets out how the adjudication will apply to construction contracts (public and private) entered into on or after October 1, 2019 (the effective date when adjudication became mandatory) and to allow sufficient time for the new college of Adjudicators called the Authorized Nominating Authority (the "Authority") to be established, to develop a regime for the certification of adjudicators, and to certify adjudicators.
Adjudication: An Overview
Under the Act, parties to a construction contract will be entitled to refer disputes to adjudication (based on the UK model) that flow from a proper invoice under a contract, including claims for valuation of work, services and materials and other monetary claims made in accordance with the contract, as well as set-offs, deductions and delay claims. This dispute resolution method will be mandatory on all construction projects, public and private, and all sizes and types. Parties will be free to draft their own provisions so long as the provisions are consistent with the Act.
Adjudication is similar to a mandatory arbitration and will provide a fast means to get an interim decision by an adjudicator of any matter that falls within Part II.1, of the Act and if one party is not satisfied with the adjudicator's decision, the party can proceed with a court action or an arbitration to reverse what the adjudicator has decided. In the interim; however, the adjudicator's decision must be followed immediately. Moreover, the adjudication may only address a single matter unless the parties to the construction contract/adjudication and the adjudicator agree otherwise.
What disputes can be adjudicated?
The following disputes can be adjudicated:
- the valuation of services or materials provided under the construction contract;
- payment under the construction contract, including in respect of change orders, whether they are approved or not, or of a proposed change order;
- disputes that are subject of a Notice of Non-Payment under Part I.1;
- amounts retained under Section 12 (set-off by Trustee) or under Section 17.3 (lien set-off);
- nonpayment of hold-back under Section 27.1; and
- any other matters to which the parties to the adjudication agree, or that may be prescribed.
How do I do commence adjudication?
A party to a construction contract can only commence an adjudication against a party with whom it has a contract. An adjudication has to be started before the date the construction contract between the parties is completed, unless the parties to construction contract agree otherwise. A party who wishes to refer a dispute to adjudication gives the other party a written notice that includes:
- names and addresses of the parties;
- nature and a brief description of the dispute, including details respecting when and how it arose;
- nature of the redress sought; and
- name of a proposed adjudicator to conduct the adjudication.
Who is the adjudicator and how do I choose an adjudicator?
The Act states that the adjudicators will not need to have a legal background, but likely will include members of a regulated profession such as architects, quantity surveyors and engineers.
The parties to a construction contract are prohibited from agreeing on the adjudicator in advance. The Act states that there is a 4 day deadline for the adjudicator to agree to take on the adjudication, which implies that the parties to a construction contract have to agree on the adjudicator prior to that.
What if I cannot agree on an adjudicator?
If the parties cannot agree on an adjudicator, or the adjudicator does not agree to conduct the adjudication, within four days of the notice of adjudication, then the referring party must request the appointment of an adjudicator by the Authority, and the Authority must make the appointment within seven days of receiving the request.
What are the timelines for an adjudication?
Within five days of the selection of the adjudicator the party who started the adjudication must provide a copy of the contract in question, and any documents the party intends to rely on to the adjudicator. The adjudicator must release his/her written decision within 30 days of receiving the documents. The adjudicator can request up to 14 additional days, but the adjudicator's request can be refused by either party.
These timelines provide that absent an extension of time, the adjudication will be determined within 46 days of the adjudication being commenced. Once the adjudicator has made a determination, a party required to pay must do so within 10 days.
What is the adjudication procedure?
The adjudication is subject to the adjudication procedures set out in the construction contract (if they comply with Part II.1 of the Act). However, if the contracts do not address adjudication procedures, or if the procedures set out do not comply with the requirements of Part II.1 of the Act, then the adjudication is subject to the adjudication procedures set out in the Act governs.
What are the powers of an adjudicator?
The adjudicator may conduct the adjudication in a manner he/she determines to be appropriate in the circumstances, and shall conduct the adjudication in an impartial manner. The adjudicator shall make a determination of the matter no later than 30 days after receiving the documents required in the notice of arbitration. The time may be extended at the adjudicator's request and with the written consent of the parties for a period of no more than 14 days, or upon written agreement of the parties, and subject to the adjudicator's consent. Otherwise, if it is made after the determination date, it is of no force or effect.
An adjudicator may exercise the following powers and any other power of an adjudicator that may be specified in the contract or subcontract:
- Make directions respecting the conduct of the adjudication
- Take the initiative in ascertaining the relevant facts and law.
- Draw inferences based on the conduct of the parties to adjudication.
- Conduct an onsite inspection.
- Obtain the assistance of a merchant accountant, actuary, building contractor, architect, engineer, or other person in such a way as the adjudicator considers fit to enable him or her to determine better any matter of fact in question. The adjudicator may fix the remuneration of the expert and who will pay it.
- Make a determination of the adjudication.
- Any other power that may be prescribed.
Who pays for the adjudication?
The parties to the adjudication will each be responsible for an equal share of the adjudicator's fees, and each party will bear its own costs, regardless of the result. However, the adjudicator may exercise his discretion and award costs against another party, if the adjudication makes a finding that the party acted in a manner that was "frivolous, vexatious, an abuse of process or bad faith".
How do I enforce the adjudicator's determination?
Once the adjudication is completed, either party to the adjudication can bring an application to the court for an Order enforcing the adjudicator's determination. Once the court order is made, it can be enforced like any other court order, including by way of writ of execution or by garnishment.
Additionally, if an adjudicator's decision to pay is not obeyed, the party expecting the payment would be entitled to suspend work under the contract or terminate. In the experience of the UK, only a small number of cases typically go from the adjudication to litigation or arbitration.