GETTING PAID: ADJUDICATING PAYMENT DISPUTES IN A CONSTRUCTION CONTRACT
Adjudication is a statutory dispute resolution process. Caitlín Love looks at the trend to adjudicate payment disputes in construction contracts
In Brief: All parties to a construction contract entered into after 25th July 2016 should be aware of the provisions of the Construction Contracts Act 2013 (CCA) and in particular to the CCA adjudication process, which serves as an efficient and effective alternative dispute resolution mechanism to standard contractual dispute resolution clauses.
It is rare for a construction contract to reach its conclusion without some form of dispute between the parties regarding payment. Ordinarily construction contracts provide for a drawn-out cascading form of dispute resolution process, usually commencing with an internal attempt at resolution (whether by a Project Board or a Dispute Adjudication Board) before proceeding to conciliation, and if unsuccessful, on to a binding arbitration.
Section 6 of the CCA introduces a new statutory option which cannot be overridden within the terms of a construction contract. It can be utilised at any time during the course of that contract regardless of whether:-
- The contract is in written form;
- The process is not expressly provided for under the contract; or
- Another form of dispute resolution process has already commenced.
The primary appeal of this is that the adjudicator appointed has a 28 day period (potentially extendable for a further 14 days) from the date that the dispute is formally referred for review, to reach a binding decision. This decision is only capable of being overturned by arbitration or litigation. Compared to the length of time that would ordinarily be expended by parties seeking resolution to a payment dispute, the adjudication process is extremely efficient and less expensive than other dispute resolution mechanisms thereby mitigating the potential effect of such disputes on project cash flows and completion dates.
WHAT CONSTITUTES A ‘CONSTRUCTION CONTRACT’ FOR THE PURPOSES OF THE CCA?
The type of contract captured by the scope of the CCA is extensive and is defined with reference to the term ‘construction operations’. This term encompasses any activity associated with construction including those services ancillary to construction operations, for example architectural design, project management, archaeological and surveying work.
The following contracts fall outside the scope of the CCA:
- Contracts worth not more than €10,000;
- Contracts which relate only to a dwelling that has a floor area not greater than 200 square metres, and one of the parties to the contract is a person who occupies, or intends to occupy, the dwelling as his or her residence;
- Contracts between a State authority and its partner in a public private partnership arrangement; or
- Contract of employment (within the meaning of the Organisation of Working Time Act, 1997).
Notwithstanding its benefits, the adjudication process had a slow take up with zero valid referrals in year one. This increased to four referrals in year two. In its third year, from July 2018 to July 2019, there was significant growth in referrals with a total of 32 disputes being referred to adjudication with a combined contract value of approximately €24.5 million. The majority of such referrals were payment disputes between main contractors and sub-contractors.
We have yet to see adjudicator’s decisions fully tested before the courts which suggests those parties involved are respecting the process and adhering to the outcome, which can only be positive.
Furthermore, if the latest trends are anything to go by, adjudication is on its way to becoming a more prominent feature of the construction contract landscape in the years to come, which in turn, will serve to decrease the number of such disputes appearing before arbitrators and before the courts.