Ensuring prompt payment practices within the construction industry is important. Michael Murphy takes an expeditious look at the industry’s dispute resolution process adjudication.
Adjudication is a dispute resolution process which has been established by statute in Ireland to ensure prompt payment practices within the construction industry. It has been referred to as a “pay first, argue later” mechanism. The distinguishing feature of adjudication is the very tight timeframe within which a decision on a dispute is required to be made.
Adjudication was introduced in the United Kingdom in 1998. Its primary purpose was to provide a quick, enforceable interim determination of disputes between parties to a construction contract which lasted until practical completion of the project, when, if not acceptable, it would be the subject matter of arbitration or litigation. It was to be conducted within a defined and tight timescale with costs kept to a minimum. It has proved very successful and has resulted in a substantial reduction in the number of construction disputes in the UK being referred to arbitration or to the courts.
Adjudication was introduced in Ireland by the Construction Contracts Act, 2013 (“the Act”) although it did not come into force until 25th July 2016. However, unlike in the UK, where any dispute arising out of a construction contract may be referred to adjudication, the Act confines its application to “payment disputes” in all construction works (subject to a few limited exceptions).
Linked to the Act, and published on the day when the Act came into force, is the Code of Practice on the Conduct of Adjudications. It deals with the appointment of the adjudicator, procedural timelines, costs and the adjudicator’s responsibilities.
The adjudication process is mandatory in that parties to a construction contract are precluded from contracting out of it. The term “construction contract” is defined in the Act as including not just agreements between contractors and sub-contractors but also agreements with engineers, architects and other consultants.
The adjudication procedure is governed by very strict time limits. The process begins when the party referring the dispute to adjudication gives written notice of his intention to do so. The parties have 5 days from the date of service of the notice to agree on the adjudicator, failing which the adjudicator will be appointed by the Chairman of a panel established by the Minister for Public Expenditure and Reform. The parties are then required to furnish submissions to the adjudicator with the adjudicator being required to make his decision within 28 days of his appointment (although the adjudicator may extend this period by up to 14 days with the consent of the party who served notice of the dispute).
THE DECISION OF THE ADJUDICATOR
An adjudicator’s decision, provided that it is made within the prescribed time, is binding and immediately enforceable and remains binding and enforceable unless and until it is overturned by a superseding arbitrator’s award or court order. Until then, if it is not complied with, it is capable of summary enforcement in the same way as any order of the court.
Unless the parties agree otherwise, the adjudicator is required to give reasons for his/her decision.
If the adjudicator’s decision is made outside the prescribed time, it will be invalid and unenforceable.
The Act provides for the parties to bear their own costs relating to the adjudication and to pay the adjudicator’s fees in such manner as the adjudicator may decide.
While it is acknowledged that adjudication, due to the informality of the process and the speed of the decision, may be no more than “rough justice”, the UK judiciary has demonstrated a remarkably supportive approach to it. It is also the case that in the UK, more often than not, the adjudicator’s decision has been accepted by the parties as the final determination of their dispute without further recourse to arbitration or to the courts.
However, having regard to the personal rights of citizens enshrined in the Irish Constitution, doubts have been expressed as to whether the adjudication process will obtain the same level of support in Ireland where the process is one which has not been agreed by the parties but has been imposed upon them by law.
As adjudications are held in private, it is impossible to know how many have been conducted in Ireland since the Act came into force. Informal enquiries would suggest relatively few but that those that have taken place have been worthwhile. While the adjudication process has much to commend it, whether or not it will become a major feature in the resolution of payment disputes arising from construction contracts in Ireland, given the application of the Irish Constitution, remains to be seen.
For further information contact Michael Murphy, Michael Carrigan or one of our Construction or Commercial Litigation and Dispute Resolution team members.
This is the third article in our alternative dispute resolution series. The first one, Mediation Explained, can be viewed here. The second one, Arbitration Explained, can be viewed here.