Jacob Austin 00:00:00 Hi all Jacob Austin here from QS.Zone. And welcome to episode 91 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode, number 91, is about adjudication. And as ever, if you are new to the show, please subscribe for more user friendly advice on all things subcontracting. Okay, so today's topic is adjudication, but this isn't a Halloween special. I'm just going to share some cautionary tales from the world of UK construction adjudication, and how to avoid becoming the protagonist of your own legal nightmare. So we'll be diving into some real life examples and landmark cases, all in plain English. So adjudication for the UK construction industry is a fast track dispute resolution process. It was introduced by Parliament in the late 90s and it gives parties to a construction contract, the right to refer a dispute to an independent adjudicator and get a binding decision, usually within 28 days. It's often described as a pay now, argue later system, meaning the losing side must promptly pay up to comply with the decision.
Jacob Austin 00:01:34 Even though the dispute can then be taken to court or perhaps arbitration later. The goal is to keep cash flowing and avoid project delays caused by lengthy disputes. It's intended to be quicker and more informal than a full trial. You don't need the full set of judges and jury. Instead, an expert from the construction industry or sometimes a specialised Construction lawyer acts as the adjudicator. Reading both sides submissions and evidence then makes their decision. The timeline is tight. Usually the notice of adjudication is served to kick things off. Then within seven days a detailed referral claim is submitted. The responding party might have 1 to 2 weeks to issue a response. And then sometimes there are replies after that. All that leads to a decision in about a month. In fact, under the Construction Act, an adjudicator must decide within 28 days of the referral. It is extendable to 42 days with both parties consent. The trade off for this speed is that adjudicators are allowed a bit of rough and ready. As one judge famously said, the need to have a right answer has been subordinated to the need to have an answer quickly.
Jacob Austin 00:02:48 In other words, adjudication isn't about perfection. It's about getting a decision based on the facts presented so that work can then continue. But just because adjudication is quick and can be interim doesn't mean it's casual. Quite on the contrary. And mistakes in adjudication can be costly and often impossible to fix later. If you mess up an adjudication, whether you're bringing the claim or defending it, you might find yourself stuck with an unfavorable decision that you basically have to obey, or you face throwing away the chance to get paid what you're owed. The technology and construction court TCC have repeatedly enforced adjudicators decisions, even if they contain certain errors and will only refuse enforcement for serious reasons like the adjudicator lacking jurisdiction or a major breach of natural justice. So when the process is seen as unfair, in other words, you usually get one shot at adjudication, so you do it properly or you live with the consequences. So how do things go wrong? Well, in today's episode, we'll be exploring a few horror stories, common pitfalls, and real case examples of adjudications gone awry, and most importantly, how to avoid them.
Jacob Austin 00:04:05 We'll cover. Missed deadlines that triggered smash and grab payment claims. Some of the legal traps that can nullify an adjudicated decision. Blunders with evidence and procedures, and breaches of natural justice that can derail the process. Think of it as learning from others mistakes in the safety of a podcast, rather than having your bank account on the line. Our first warning story is something of a legend in construction circles the fabled smash and grab adjudication. So the scenario is you're a subcontractor whose finished work and submitted an application for payment. The due date passes and the contractor fails to issue a payment notice stating what they intend to pay. Then they also missed the deadline for a pay less notice, which would have legally allowed them to reduce the amount if they'd missed that original deadline in construction, that is akin to leaving the castle door open and waiting for the money to come rushing out. By law, if the paying party doesn't issue the required notices on time, the amount you applied for becomes the notified sum, and that must be paid.
Jacob Austin 00:05:12 No ifs, no buts, no negotiation. If they still don't pay up, then you can launch an adjudication and you can pretty much win by default, since the dispute isn't about the true value of the work completed at that point, but about the failure to follow proper payment process. You're essentially smashing in and grabbing the full sum because the other side smashed the procedural rules. That might sound great for the unpaid subcontractor, but it is a horror story for that party that misses the deadline. So let's put some real names to this. In Davenport, Builder's Limited versus Greer, the Greers were homeowners acting as a paying party. They failed to issue a payment notice after the contractor, Davenport, applied for around about 106 grand in final payment. Davenport initiated adjudication and sure enough, the adjudicator ordered the Greers to pay the full amount because by not issuing those notices, the Greers were deemed to have accepted the application in full. Now, they've probably had some arguments about defects or overvaluation, but they lost the chance to argue them at that stage because this argument was about the broken procedure, not the value of the work.
Jacob Austin 00:06:25 So what did the Greers do? They didn't pay up even after losing and instead tried a tactical move. They immediately started a second adjudication to determine the true value of the final account, hoping to show that actually nothing was owed. And in that second adjudication, the new adjudicator indeed decided the true value was much less essentially, that Davenport wasn't entitled to additional money. It looked at first like the Greys had snatched a late victory until it then went to court. Davenport went to the TCC to enforce the adjudicators decision from that first smash and grab adjudication. The court then had to decide if the Greers could first offset the payment they were going to make with the result of the second adjudication, without having paid the first award at all. The judge, Mr. Justice Stuart Smith, applied a recent precedent. S&P UK limited versus Grove Developments and delivered a clear message an unsuccessful party in a smash and grab must pay now and can only argue later. In other words, the Greers had no right to use the second adjudications outcome as a defence or an offset against the first adjudication.
Jacob Austin 00:07:40 They must first pay the 106,000 from the smash and grab decision before they could rely on the true value decision, so the court ordered the Greers to pay Davenport despite the second adjudicators decision. Ouch. So the Greers attempt to escape the procedural slip up had failed. And it goes to show if the procedures aren't followed. You're on the hook to pay up in full and then quarrel about the amount later. So what does that mean for you as a subcontractor? Well, there are two sides to the coin. If you're the party expecting payment, then make sure you submit proper applications for payment on the date set by the contract and in line with the requirements of the contract. If the payer fails to issue a timely payment notice or pay less notice. Recognize the opportunity, but tread carefully. It might be a strong tactic to adjudicate for the full amount due to the oversight. However, remember that the other side might still launch an adjudication for the true value. And this is where records matter. Just because you win the first round doesn't mean the fight is over.
Jacob Austin 00:08:47 In our case here, Davenport got the money, but the true value was adjudicated at nil. So this essentially needed to be paid back. So don't inflate your application unrealistically as it can come back to bite you. This scenario, though, is much more dangerous for the paying party, and that can apply to you if you're paying subcontractors downstream. The advice on this is simple and stark. Do not miss your notice. Deadlines. Do what you need to do. Mark them in red on your calendar. Set alarms. Set reminders. Train your contract admin staff because the people issuing that notice need to be aware of the severity of not doing it. And that is, you could be paying sums of money that you might not think are due just because of paperwork. So the point being, not to let complacency and poor admin create such a significant legal liability. Our next horror story is the jurisdiction trap. This is the legal equivalent of wandering off into a minefield and accidentally taking one wrong step, and your whole case blows up.
Jacob Austin 00:09:56 Jurisdiction is the adjudicators power to decide the dispute. An adjudicator only has jurisdiction over the dispute referred to them if certain conditions are met. For example, there must actually be a dispute and that must have crystallised between the parties. It must have arisen under a construction contract which is covered by the Construction Act, and the dispute must be within the scope of what was referred in the notice. If those main conditions aren't satisfied, then the adjudicators decision can be challenged or even overturned altogether. Now let's talk through what that means with some examples. Scenario one the Phantom dispute A subcontractor is frustrated with the main contractors silence or their slow response on a claim, and in their haste They fire off a notice of adjudication way too early. The problem with that is that there isn't actually a fully formed and crystallized dispute yet. Maybe the contractor hasn't flat out denied the claim, or the ink on the claim letter is barely dry. The Construction Act says a party can refer a dispute at any time, but the courts have added to that to say sure at any time, provided there is a crystalized dispute.
Jacob Austin 00:11:16 Crystallization means you asserted a claim or an entitlement, and the other side has either rejected it or failed to respond within the contractual timescales. And from that you can infer a disagreement. If you refer something too early, then the adjudicator might not have that jurisdiction to decide it, because arguably there isn't yet a dispute. For example, a recent case between BW Trading Limited and Ardmore Construction Limited from 2024. One primary argument was about whether the dispute had crystallised BW as the claimant had complained about defects. They sent a detailed letter of claim with supporting evidence and even invited Ardmore to inspect the issues. Ardmore s response was to stall. They asked for more particulars and they didn't take up the offer to inspect, effectively dragging their feet. BW eventually got fed up and went to adjudication and Ardmore cried. Not so fast. There's no dispute yet. We're still exchanging information, but in this instance, the court disagreed. They decided that BW claim was pretty clear, and because Ardmore were evasive, a dispute had actually crystallised.
Jacob Austin 00:12:37 BW had allowed enough time for a response, and they'd provided quite a comprehensive claim document. So as a subcontractor, if you receive a claim, particularly if it's well considered, then you need to jump to respond to that, or at least make sure you do it within your contractual timescale. You can't stall an issue forever, particularly in this case if it's got legs. On the flip side of this, had BW rushed in to adjudicate without giving Ardmore that chance, say they'd referred the dispute after a week of notifying it, then the adjudicator might have been acting without jurisdiction. The horror story for this as a referring subcontractor is investing the time and money into an adjudication, only for the decision to be unenforceable and the result that there is no dispute because you pulled the trigger too early. So you need to be clear about the contractual time the contractor has to respond when that time is up. The sensible thing to do would be to give them a nudge. Do you agree to X? Please respond by this date or we'll assume that this matter is in dispute.
Jacob Austin 00:13:44 You can then use this detail in your notice. We sent a claim on this date. You reply to it on X date or you failed to reply. We chased you on this many occasions and therefore a dispute exists and that heads off the crystallization challenge. Scenario two the wrong contract. Not every contract in construction is covered by the Construction Act adjudication, right? Most are, but there are exceptions like purely residential homeowner contract or contracts that aren't construction operations. Also, as clarified recently, many collateral warranties if you try to adjudicate under a contract that isn't actually a construction contract as defined by law, then the adjudicator has no jurisdiction under the act. That is, unless the contract itself has an adjudication clause that enforces it. A recent landmark example is A-B healthcare versus simply construct. In that case, a collateral warranty was used as the basis for an adjudication. But the question was whether that warranty was a construction contract under the act. Initially, the Court of Appeal in 2022 said yes, it could be.
Jacob Austin 00:15:00 Which alarmed a lot of people. But the Supreme Court in 2024 reversed that decision. It decided that most collateral warranties are not actually construction contracts, especially if they only guarantee past work quality rather than to promise new work is done. The Supreme Court reasoned that the purpose of these warranties is different. They're more about remedies for defects than about paying for construction work itself. An adjudication, with its focus being on cash flow, doesn't naturally fit. So Abbey's adjudication was ultimately deemed to have been launched without valid jurisdictional Basis, i.e. no construction contract, so the award was invalid. And the horror story here is that the beneficiary, Abbie, spent a lot of time and money adjudicating and even won £900,000 from Simply Construct, but they found themselves back in square one because the court decided that the adjudicator never had the power to award that money. So they're back at square one, and their only option now is to try the court. The lesson here for you as a subcontractor is to know your contract and its legal status.
Jacob Austin 00:16:13 That means, as I always remind you, that the least you should do is read it. Most standard sub contracts for building work are covered, but it might be a point to confirm if you're working on offsite work or certain specialist plant work. Perhaps if you're working under a standard subcontract, then you don't need to worry, but it is worth clarifying if you're not. Scenario three we have multiple disputes. the overstuffed raffle. This is a subtler trap, because the Construction Act allows you to refer a dispute to adjudication. Note the singular form, and there are plenty of legal cases grappling with what counts as one dispute versus multiple disputes. If you carry too many unrelated claims into one referral, the adjudicator might only have jurisdiction over one of them and not the others, which could torpedo part or all of the decision. For instance, if a subcontractor refers to a dispute about unpaid invoices and a separate dispute about a wrongful termination, those might be considered separate disputes that each require their own adjudication. However, if all the issues are just parts of one larger argument, say over the final account, then it may be treated as a single dispute with many sub issues.
Jacob Austin 00:17:34 The tricky part is if you misjudge that and the responding party objects, then you could lose jurisdiction over the whole thing. A case from 2021 Prater Limited versus John Sisk and Son, illustrates both the multiple dispute issue and the importance of timing objections. Prater, a cladding subcontractor, had run a series of four adjudications against the main contractor, John Sisk, which sliced the final account issue into pieces in one of the early adjudications. Prater obtained several declarations on different issues, like what the completion date was, responsibility for certain costs, etc. Sisk went on to argue in court that these were actually separate disputes that were improperly bundled, and so the adjudication was beyond jurisdiction. But the issue was that Sisk only raised this to the court after Prater had gone on to win a big monetary award in the fourth adjudication that built on those earlier declarations. Operations. At that point, the judge said, hold on. Too late. You should have challenged this earlier. Not waited until the enforcement of adjudication for by participating in the second adjudication without objecting to the first one, then you've waived the right to do it now.
Jacob Austin 00:18:52 They then also went on to state that even on merit, the issues combined together were part of one overall dispute, which was due in the final account, so it was acceptable to deal with them all at once. So the moral of this story is that if you have multiple claims, unless they are effectively tied together by one large disagreement, then you should separate them out. So if you've got a payment dispute from June, but then an unrelated defect issue from August, it's safer to do separate adjudications to try and get to the right outcome. Crucially, if you're on the receiving end of an adjudication and you believe that the side you're facing has snuck in Knocking multiple issues, then raise it immediately. Clearly make known your position to the adjudicator. This isn't something you can just keep in your back pocket and use it as an escape hatch if you don't like the outcome. Our next little nugget holds a warning on paperwork. Far quieter but equally deadly kind of horror story. A subcontractor has presented a claim.
Jacob Austin 00:19:56 And it's not that it doesn't hold merit, but because they messed up the order of the paperwork, that their adjudication fell foul. And this was in the case of lane end developments versus Kingston Civil Engineering. Kingston, who is a subcontractor, had served a referral and contacted the RCS to appoint an adjudicator before formally issuing the required notice of adjudication to the other side. That sounds like a minor sequencing issue, right? Wrong. It was later taken to court where the ruling was that the adjudicator themselves was never validly appointed. That meant the entire decision, which was worth £356,000 to Kingston, was wiped off the map. The lesson from that is that the sequence matters. The rules require that you first notify the dispute to your opponent, then approach the adjudicator nominating body. Deviating from that sequence, even by a few hours, can render the whole process void. You can avoid this trap by confirming your contractual routes to adjudication, preparing a clear dated notice, giving it to the other party before contacting any nominating body, and waiting ideally a day before applying to appoint an adjudicator.
Jacob Austin 00:21:13 That way, the records will back you up that you followed the right steps. It's a procedural law, and it's that kind of procedure that can wreck your chances if you don't follow it properly and get it right. Now let's conclude our horror stories with one that feels especially cruel. You fought your way through adjudication. The decision goes in your favor, and you breathe a sigh of relief until you discover the award isn't worth the paper it's printed on. Why? Because it's unenforceable. Courts only enforce adjudicators decisions that meet minimum standards. Jurisdiction must be intact and natural justice observed, even if your case is strong. If there's a procedural flaw in your submission, or if your company is in administration, then you could face a refusal to enforce. For example, in mail in Industrial Flaws versus Volker Fitzpatrick, mail in industrial floors got a judgment in their favor, but the court stayed enforcement to allow a counterclaim to be assessed first. That's a big delay when you're in need of cash. Even a company in liquidation has the right to adjudicate.
Jacob Austin 00:22:27 But the court wants to safeguard the right outcome, which means that they always safeguard the money or leave it where it is pending the resolution of a counterclaim. And they do that so that if the counterclaim is successful, the money is there to be clawed back, which isn't guaranteed to be the case if it's paid out to a load of creditors by an administrator. And that, to me, seems like the cruellest outcome of all, because a company strapped for cash has gone through the pain of adjudicating to get to the other side, thinking that this is going to steady the ship and going to see them right again, only to find out that the courts refuse to enforce the decision. For me, that makes a farce of the entire process. There is some logic behind why they're doing it, but for me, it just isn't right and it's almost guaranteed to put the nail in the coffin. If a company is teetering on the edge, you may be able to avoid this by acting quickly. Don't give the other side any time to mount a defensive ambush.
Jacob Austin 00:23:25 Perhaps if you're financially shaky, you could consider the use of a bond or some security, or even holding the money in escrow to reassure the payer and the court. The arguments around non-payment are slim. Don't assume that the courts will enforce a decision out of sympathy because it won't happen. There's plenty more to say on adjudication, and really, I've only looked at the very tip of the iceberg of what is a colossal amount of history and even horror stories that I could warn you about. But everything I've spoken to you about today is all avoidable. If you're in an adjudication situation, you must be armed with preparation, precision, and a healthy respect and understanding of the process. The things that you can always do is to collate records. These are the important bits of evidence that you only have a limited opportunity to get your hands on, because a building site is ever evolving, the thing that's holding you up today could be well out of the way in just a few weeks time. And with it is all of the evidence that there was ever a delay.
Jacob Austin 00:24:33 So it's always worthwhile taking records, even if it seems like a small or trivial issue. These things have a habit of snowballing, and the problem is you just don't know which one's going to snowball and which ones won't. So the only way around that is collate as much evidence and documentation as you can. It's better to have it and not need it than to absolutely need it. If you haven't got a hope in hell's chance of getting it. Some of the other lessons from the points I've discussed with you today are to know and understand your payment notice procedures, particularly if you are paying out downstream because it's you who could get in real trouble if you slip up. You also need to know and understand the adjudication procedure if you're going to launch one, and if it's not something that you're comfortable with, I would highly recommend you get in touch with a specialist. Let them handle the tricky part to improve your chances when it comes to the decision. So thanks for tuning in. If you like what you've heard today and you want to hear more on that line, then please let me know.
Jacob Austin 00:25:38 You can reach out on all your favorite socials at QS.Zone, and you can also hunt us down at www.QS.Zone online for more information. My mission with this podcast is to help the million SME contractors working out there in our industry. If you've taken some value away from today's episode, I'd love it if you'd share the show and pass that value on to someone else who'd benefit from hearing it. And of course, subscribe yourself if you haven't already. Thanks again. I've been Jacob Austin and you've been awesome.
