Statutory adjudication in the construction industry
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It is a recognized fact that our construction industry is riddled with disputes. Payment default has been an issue that has plagued the industry. The economic downturn in the construction sector has highlighted the lack of formal contractual arrangements and bad payment practices in the sector.
Delayed payment, non-payment and conditional payment namely ‘pay when paid’ and ‘pay if paid’ have and continue to cripple the construction industry. The financial problems affecting some construction companies have in turn affected sub-contractors and suppliers further downstream along the construction value chain. This is a sad reflection of the construction industry.
A recent adventis the concept of Statutory Adjudication. This form of dispute resolutionis not new or related to mega construction projects. It is a piece of legislation to protect small – medium size specialist contractors, main contractors and consultants alike where payment has been denied by their respective employers.
A legislation that streamlines payment procedures.
Several countries in the world have taken the problem of payment to heart and have enacted specific legislation to deal with disputes of this nature in the construction industry.
The UK first enacted the Housing Grants, Construction and Regeneration Act 1996 some fourteen years ago. The UK Act has been so successful that otherjurisdictions have embraced statutory adjudication. Singapore adopted the Building and Construction Industry Security of PaymentAct 2004. Malaysia enacted The Malaysia Construction Industry Payment and Adjudication Act 2012. Ireland introduced the Construction Contract Act 2013. Countries like New Zeeland and Australia
have alsoembraced the Adjudication Act.
Importance of the Adjudication Act
The Adjudication Acts seek to address the issue of non-payment by better cash flow in 3 key ways
• First the Acts requirethat all construction contractsinclude a clearpaymentregime.
Apartfrom a smallnumber of formal standard forms of contracts and conditions, the current arrangement for construction contracts are muchtooimprecise and informal.
As a result, they do offer a cost-effective and timely solution for
(i) Consultants
(ii) Contractors
(iii) Sub-contractors
(iv) Suppliers
The Adjudication Acts provide that where a payment notice is submitted and the amount is contested by the partying party, the paying party has a certain number of days (7-21) to deliver a response setting out the amount that it proposes to pay and the reasons for the difference between that amount and the amount claimed. This response must also set out the basis of the calculations used to arrive at the amount paid.
If thus is not agreed between the parties, then the amount paid shall be the amount included in the withholding notice the receiving party can dispute the assessment and refer the matter to adjudication.
The Adjudication Acts provide a fundamental protection by outlawing ‘pay when paid’ clauses. Even if a party higher up the contractual chain has not been paid this provides no basis for refusing to pay or withholding part-payment from sub-contractors.
• Second, the right of suspension for non-paymentis put on a statutory footing.
The Adjudication Acts allow a party which has not been paid by the date the payment is due to suspend work. A written notice has to bedelivered to the paying party at least 7 days before the proposed suspension begins.
• Third and perhaps of particular significance, is the introduction of a fast-track dispute resolution produce through a statutory entitlement to refer disputes relating to payment to adjudication.
Adjudication provides a speedy and cost-effective means of dispute resolution. The decision of the adjudicator is binding unless it is overturned by the courts or by an arbitrator depending on the agreed dispute resolution forum within the particular construction contract.
This means that where an adjudicator decides that payment is due, that payment must be made.
Mauritius Adjudication Act
• The Adjudication Act will give a party to a construction contract the right to referany dispute to adjudication ‘atany time’
• The adjudicator has a mandated-short time frame to reach a decision
The adjudicator must reach a decisionwithin 28 days of the date that the referralis made
Most adjudicators are likely to be over in a matter of weeks
Conclusion
Statutory Adjudication will transform dispute resolution in construction. The real value is that it provides a quick answer which must be complied with. This will ensure that an answer to a dispute over payment will be arrived atquickly and money will flow.
