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Construction Adjudication for low value disputes: TeCSA Low Value Disputes Adjudication Service CIC Low Value Dispute Model Adjudication Procedure

Whilst the object of construction adjudication is to reach a fair, rapid and inexpensive (if, sometimes, broad brush) decision of a dispute arising under a construction contract, increasingly parties are often being deterred from using adjudication because of what is said to be the increasing complexity and prohibitive costs involved. With this in mind, last month's announcements from the Technology and Construction Solicitors' Association and the Construction Industry Council of the launch of, not one, but two new adjudication services aimed at low value disputes are likely to come as welcome news for construction professionals and their insurers.  We consider the respective features and merits of both services below. 

TeCSA LVD Service

On 21 June 2019, the Technology and Construction Solicitors' Association (TeCSA) launched a six month pilot of its new low-value disputes adjudication service (the LVD Service). The TeCSA LVD Service is intended to offer a faster, more cost effective way of enabling small companies/business to obtain an adjudicator's decision on their dispute. 

Whilst TeCSA must be a named Adjudicator Nominating Body (ANB) in the construction contract if the LVD Service is to be used, its use is not limited to adjudications run under the TeCSA Adjudication Rules. 

The LVD Service will

  • only apply to claims under the Housing Grants, Construction and Regeneration Act 1996 (as amended) – the "Construction Act" or to claims under other types of construction contracts which have adjudication provisions which incorporate the Scheme for Construction Contracts made under the Construction Act; and
  • seek to cap adjudicators' fees for claims worth up to £100,000, capping the adjudicator's fee according to the value of the claim.   

Critically, as only the adjudicator's fees are capped, there is no need to obtain the consent of the other party to use the LVD Service if TeCSA is the named ANB in the relevant contract.

The pilot intends to apply the following fee caps:

Claim Value*

Adjudicator's Fees

Up to   £10,000 plus VAT

Capped at   £2,000

Between   £10,001 - £25,000 plus VAT

Capped at £2,500

Between   £25,001 - £50,000 plus VAT

Capped at   £3,500

Between   £50,001 - £75,000 plus VAT

Capped at   £4,500

Between   £75,001 - £100,000 plus VAT

Capped at   £5,000

*Note - the claim value excludes VAT and interest. For example, a claim for £100,000 plus VAT and interest would qualify.

To access the LVD Service, the claim must be for a specific liquidated sum.  This may include disputes over interim or final payments, loss and expense, damages or variations.  It is not intended to apply to claims for declarations as to the meaning of contractual terms. 

Applicants for the LVD Service will self-certify the value of the claim when applying to TeCSA for an adjudicator to be nominated.  TeCSA will then nominate an adjudicator on the basis of the claim value.  The parties will then proceed with the adjudication.  Other than the cap on the adjudicator's fees, the adjudication proceeds in the usual way under the pilot.

Claimants wishing to commence an adjudication under the LVD Service are required to:

  1. use the specific LVD Service application form (which can be downloaded from the TeCSA website).
  2. Pay the nomination fee of £350.00. 

The Adjudicator will be nominated by the Chairman of TeCSA or authorised officer. It is also the TeSCA Chair, not the Adjudicator, who has the discretion to decide if a dispute is unsuitable for adjudication. One can foresee potential difficulties where a sub-contractor commences an adjudication for release of a retention where the value is understated. Perhaps where the responding party's subsequent defence alleges numerous defects valued considerably in excess of the retention claimed and seeks payment of the difference in value, being in excess of £100,000. In these circumstances although the dispute is clearly no longer suitable for a LVD adjudication under the  LVD Service the Adjudicator has no right to resign and must proceed on the basis of the maximum fee cap.   

The LVD Service pilot will run until November 2019, at which time, TeCSA will review the experiences of adjudicators and those who have used it.

The CIC LVD MAP

On 4 June 2019 the Construction Industry Council (CIC) announced its intention to develop a Low Value Dispute Model Adjudication Procedure (LVD MAP), with the aim of providing a simple and cost-effective procedure to make adjudication more accessible for SME's and others involved in lower value claims. The LVD MAP is currently being developed by a Working Group drawn from key industry bodies.  In a similar way to the TeCSA LVD Service, it is intended for disputes where claims are of a low value and the issues in dispute are not particularly complex. Its aim is to provide a streamlined adjudication procedure for low value disputes by linking the Adjudicator’s fee to the amount claimed. 

The LVD MAP provides for the CIC, or other participating ANB, to nominate an adjudicator who will adjudicate under the LVD MAP provisions (which are Scheme compliant). The CIC hopes that other ANBs will agree to participate in the LVD MAP.

The draft consultation paper provides an outline timetable for the procedural stages (set out below) which is intended to provide a flexible yet simple to understand approach to the key elements of the adjudication process.

The CIC intends that parties will either incorporate the LVD MAP into their contract at the outset, or agree to its use on an ad hoc basis.

CIC LVD MAP proposed Timetable

After receiving the Referral Notice, unless the Adjudicator directs otherwise, the adjudication timetable is likely to be as follows (based upon the Referral Notice being received by the adjudicator on Day 1):

  • The Responding Party will respond to the Referral Notice no later than Day 14.
  • If the Referring Party wishes to make any Reply to the Response, it may do so in writing no later than Day 21.
  • The parties will receive the Adjudicator’s Decision not later than Day 28.

The CIC LVD MAP intends to apply the following fee caps which, whilst similar to the TeCSA LVD Service, only caps fees up to claims with a value of £50,000.

Claim Value*

Adjudicator's Fees

Up to   £10,000

Capped at   £2,000

Between   £10,001 - £25,000

Capped at   £3,500

Between   £25,001 - £50,000

Capped at   £6,000

Over £50,000

Negotiable

In contrast to the TeSCA LVD Service if the Adjudicator decides the dispute is not suitable for adjudication under the LVD MAP, the Adjudicator can resign and the LVD MAP cannot be used by a different Adjudicator to decide the same dispute. A non-exhaustive list of factors which the Adjudicator may consider as demonstrating that a dispute is not suitable for adjudication using this procedure are set out in further guidance. One example is where the documents included in the Referral, Response, or the Reply to the Response exceed more than one A4 Lever Arch File. This may be problematic if, following service of the Reply, it becomes evident that all the documents exceed the single lever arch file limit and could result in the Adjudicator resigning very late in the process. It is unclear whether the Adjudicator would, in that situation, be entitled to payment of their fees and expenses. Common sense will need to operate in relation to such a restriction, as otherwise it may potentially be exploited tactically by a party who wishes to thwart an otherwise valid adjudication.    

The outcome of the CIC's consultation is currently awaited. 

Comment

For construction professionals the LVD Services are likely to be most relevant when seeking to pursue a client for unpaid fees. In circumstances where there is generally no costs recovery from the losing party, any moves to reduce the costs that need to be incurred to pursue fee recovery actions are to be welcomed.

Take up of the LVD Services will depend upon the respective supporting organisations being named as ANB in contracts. This is likely to require amendments to be made to the default options in many standard form contracts.

Contact

For more information please contact Damian McKinnon, Associate Damian.McKinnon@dwf.law, Philippa Varcoe, Senior Associate/ Professional Support Lawyer Philippa.Varcoe@dwf.law or Robert Goodlad, Director Robert.Goodlad@dwf.law.

 

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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