Avoiding and resolving construction disputes in the COVID-19 crisis

The government is strongly urging parties in the construction sector to behave responsibly in both the performance and enforcement of contracts, which are being impacted by the Covid-19 emergency. Guidance published by the Cabinet Office encourages contracting parties to act sensibly and fairly to protect jobs in an industry that contributes around 10% of UK GDP.

The guidance has been issued by the government this week against a background of increasing concerns that the industry faces an impending crisis of costly and time-consuming disputes. A potential wave of disputes would cause immense damage to the industry, and the wider economy. They may ultimately kill off many smaller businesses, which are not capable of dedicating adequate finance and resources to dealing with them.

The Cabinet Office has set out a range of measures, which parties are strongly encouraged to use, to prevent differences from escalating into disputes and, when disputes do occur, to deal with them quickly and cost-effectively. A key part of the guidance is recommendation to contracting parties to use the Construction Industry Council’s Low Value Adjudication Procedure, and the RICS’ fast-track (15-day) adjudication service, both of which are accessible, easy to use and include a cap on adjudicators’ fees.

The low value adjudication models promulgated by the CIC, RICS and other industry bodies are reminders that adjudication was originally developed as a means of resolving “bite sized” disputes quickly and cheaply. They are also re-focussing attention on a legal obligation on adjudicators to adopt procedures that are suitable for the dispute in front of them, and to avoid unnecessary expense.

There will inevitably be challenges for those adjudicators who have been immersed for years in adjudicating high value, multi-faceted disputes, and have grown used to implementing procedures that are by necessity complex and immensely demanding on their time.  The low value models represent different challenges. They require adjudicators be flexible and to be ready adapt their approach to dealing with various levels of sophistication in terms of both the issues and parties they must deal.

Perhaps the biggest challenge adjudicators will face when dealing with disputes under the CIC and RICS low value models is to take charge and make key decisions on the precise procedure that will be adopted, particularly when one party, most likely the respondent, demonstrates a reluctant to cooperate.

The CIC Model Adjudication Procedure for Low Value Disputes (CIC LVD MAP) was launched on 1 May and RICS has already nominated several adjudicators who are proceeding under the procedure. A key question that has been raised by referring parties (and adjudicators) on a couple of occasions is: “what if the respondent doesn’t agree to use the low value procedure”?

Part 7 of the CIC LVD MAP includes a helpful example of a clause that parties can adapt for use in their contracts which says: “The Parties agree that any Low Value Dispute arising from a Contract for the carrying out of construction operations may at any time be referred to adjudication in accordance with the CIC LVD MAP”.

Part 8 of the CIC LVD MAP says that the “procedure will be adopted if the Parties have incorporated it into the Contract directly by reference”. This seems like an obvious thing to say. In other words, the  procedure will be used if the parties’ contract say it will. Part 8 goes on to say that: “alternatively, the Parties may agree to use this procedure on an ad-hoc basis when a dispute arises”. In other words, even if there is no contractual obligation to do so, the parties can agree to use the CIC LVD MAP.

So, what happens if there is no clause in the contract that says the parties must use the CIC LVD MAP, or any other procedure, there is no ad hoc agreement and one party wants to use the CIC LVD MAP and the other does not?

The answer is that the decision as to whether the low value procedure will be applied (in whole or in part) will normally rest with the adjudicator. The adjudicator’s powers under the Scheme for Construction Contracts Regulations enable him to decide the procedure that will be applied to deal with the dispute before him. He does not need the parties to agree his proposed procedure. The adjudicator’s decision on matters of procedure and evidence are unfettered save that he must, as required by 12.b of the Scheme, adopt a procedure that saves unnecessary expense.

In practical terms, if a referring party applies to RICS, or other ANB, and requests the adjudication to be conducted under the CIC LVD MAP and there is no contractual requirement, or ad hoc agreement by the parties to use it. then the adjudicator may nevertheless exercise his powers under law and decide to adopt it as the procedure to be followed.

An adjudicator would be expected to consider two key questions. First, is the request to use the CIC LVD MAP appropriate, given the relative complexity and value of the dispute? The CIC procedure includes a non-exhaustive list of circumstances which could make a dispute unsuitable for the low value procedure, e.g. the dispute is very complicated, or it involves a claim which is significantly over £50,000.

Secondly, has the respondent raised an objection to the use of the low value procedure which is  reasonable? The adjudicator would be wise to consider the merits of any objection raised by the respondent to the use of the CIC LVD MAP in the light of the adjudicator’s personal obligation in law to avoid unnecessary expense.  

If the adjudicator considers that the dispute lends itself to the low value procedure (all or in part) and that any objection raised by the respondent is unreasonable, he should proceed in dealing with the matter, adopting the low value procedure requested by the referring party in whole or in part, i.e. as a framework for helping to ensure there is no unnecessary expense.  

Some have said that the industry should expect a tidal wave of disputes in the coming weeks and months. There will inevitably be a great demand for low value adjudication procedures such as the CIC and RICS models. Going forward there will be a duty on adjudicators to be tenacious and make brave decisions on procedural and evidential matters. For parties, the message from the government is clear. The long-term survival of the construction industry is a priority. Ensuring disputes are avoided if possible is important. If they cannot be avoided, then the Government “strongly” recommends that the industry adopts procedures such as the LVD MAP.