Jonathan Nugent, managing director at Arbicon, explains how many contractors are still unaware of the right to adjudication in construction contracts and are losing out on significant payments due
The construction industry is well known for late payment and indeed non-payment. When main contractors and subcontractors fall foul of a payment dispute, it should come as a surprise that many are still unaware of their right to adjudication to recover sums… but unfortunately, it is not a shock to Arbicon.
Providing rights to payment and adjudication
After 23 years of the Construction Act being in force, providing rights to payment and adjudication, it is incredible that so many firms still know nothing about it and how the process is designed to protect their rights and avoid court proceedings. Not to mention the payment notice process and how many paying construction firms fall foul of it, using the Late Payment Act to compensate the suffering.
I will give you an example. I recently took a call from a roofing subcontractor, who had been hit by a main contractor for a contra charge of £20,000. The deduction was a round unsubstantiated number and was for alleged delay costs and defects. The case dated back four years and previously had some airing in court through a failed attempt with a statutory demand, resulting in £5,000 costs for the subcontractor.
Understandably sceptical that the issue could be resolved cost-effectively, having been advised from a solicitor that court is an option but that costs would outweigh gain, they turned to Arbicon. I advised adjudication as being an effective dispute resolution in this situation, which the subcontractor was unaware of, asking, “what is adjudication?” and “Am I too late to claim after four years?”.
I explained the adjudication process and highlighted that disputes are usually resolved within 28 days, with rights determined and sums recovered, and that there are six years to claim.
Unfortunately, this is a conversation I have too often with contractors that are party to a commercial construction contract, unaware of their statutory right to adjudication, irrespective of any court case, even after 23 years of it being in practice and widely successful.
More protection
With no written contract except for an exchange of emails, no payment terms and adjudication provisions, the subcontractor had dismissed that they even had a case. They were unaware that although a construction contract is preferred and provides more protection, without one, the Construction Act and scheme step in as terms. The Late Payment Act provides 8% over the base rate and the costs of pursuing the debt, except the adjudicator’s fees.
The contra charge advice turned up three months after the payment application and no other payment notices or Pay Less Notices were served so the money was due in default. Arbicon wrote to the main contractor pointing out the position of the subcontractor, with a claim for costs and interest, highlighting the right to adjudicate the default payment notice if ignored. Full payment was recovered swiftly.
There are many small contracting businesses who do not fully understand the commercial payment process and dispute management, ending up out of pocket thinking that a court case is the only option.
Arbicon is regularly appointed as an expert witness in court proceedings and I find it incredible that in a commercial construction contract, where there is a significant amount disputed, the payee claimant has not adjudicated to recover payments.
Jonathan Nugent
Managing director
Twitter: arbicon
LinkedIn: arbicon
