Deconstructing Construction Disputes – Pros & Cons of Adjudication

What is Adjudication?

Adjudication is the method of dispute resolution prescribed by the Construction Contracts Act 2002. The Act applies to every contract that relates to carrying out construction work in NZ, whether that contract is written, oral or a mix of the two, that. Any party to a construction contract has the right to refer a dispute to adjudication and may exercise that right even if the dispute is the subject of proceedings in a court or tribunal.

Adjudication is no longer seen as "alternative" dispute resolution - it is now an internationally recognised as a method of construction dispute resolution.

Adjudication comprises the following documentary steps:

1. Notice of Adjudication and referral to adjudicator
2. Adjudication Claim - issued by the claimant with the details of dispute
3. Response - issued by the respondent in response to matters raised by the claimant in the adjudication claim
4. Reply - issued by the claimant in response to any matters raised by the respondent in its response not addressed in the adjudication claim
5. Rejoinder - issued by the respondent in response to new matters raised by the claimant in the reply

In each of steps 2-5 above the parties submit any evidence and documents to support their position. A determination is then made by the adjudicator on the papers, without a hearing.

Pros

• Adjudication is tailored to construction claims, and adjudicators tend to have construction expertise of some description, whether from a technical background or a legal one.
• Adjudication is quick. Thanks to rigid timeframes set out in the Act, an adjudication can be completed and the dispute determined in as little as 30 working days. The timeframes can be extended where agreed/ordered, but adjudication will invariably be quicker than other forums.
• Adjudication is comparatively inexpensive when set against other forums. Adjudications are determined on the papers with no requirement for discovery, interlocutories or a hearing. Given the short and rigid timeframes there is limited time for expansive and expensive process.
• Adjudication will result in a final determination, unless opened up in arbitration, or judicially reviewed. Reopening a dispute through arbitration may occur depending on the nature and value of the dispute, but judicial review is uncommon. The BDT Report 'Statutory Adjudication in NZ 2003-2023' found that only 14% of claims had jurisdictional challenges and only 2% of those were successful.

Cons

• Adjudication is not geared towards negotiation or mediation. In small claims, it is probable the issues in dispute have been thoroughly aired between the parties before an adjudication is issued. However, in high-value or multi-faceted disputes, it is likely a mechanism for discussion between parties may be beneficial.
• Adjudication has a specific and limited scope to claims under the contract between specific parties. This may mean other construction parties relevant to the dispute are not engaged in dispute resolution.
• High-value claims may still go on to arbitration. Where this occurs (anecdotally, in ~5% of cases or less), a determination is an interim decision only. Where a party is reliant on a determination to recover its losses, this open avenue for appeal can be frustrating. An adjudication may simply be a costly precursor to a costlier dispute.
• There is no limit on the number of matters to be determined in a single adjudication. In my recent experience, there has been a trend toward omnibus disputes, where the scope of disagreement is not narrowed at each step in the process. It can end up being a rushed and expensive process if the adjudicator is called on to deal with a huge number of issues very quickly.

My two cents - what could be improved?

The cons for adjudication set out above could be addressed by the following, any of which would require amendments to the Construction Contracts Act:

• The process could be expanded to cover disputes outside of the contract, including damages on repudiation or interest. These are not currently within the ambit of adjudication unless there are clauses in the contract to cover them.
• The process could be expanded to cover simple multi-party disputes. It can be inefficient and expensive to have separate claims between the principal and contractor and contractor and subcontractor on the same subject matter.
• The process could set a limit on the number of separate factual disputes to be addressed in a single adjudication or have a different set of timeframes for multi-issue disputes. This would be exceedingly complex to administer but may dissuade the use of adjudication for omnibus disputes.
• The process could have a pause mechanism to allow or incentivise negotiation. This would be beneficial for high-value claims and multi-party disputes.

Concluding remarks

When used for more complex multi-faceted matters, adjudication can be unwieldy. However, for disputes with simple clear issues to resolve (even if the value of the matter is high), adjudication is a simple, quick, and cost-effective option to resolve small scale construction disputes.

If you have any questions about if or how adjudication could be used to resolve any dispute you may have, get in touch with the Dentons Major Projects and Construction team.

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