Low Value Adjudication
COVID-19 has changed everything. The world we were living in just a few months ago has melted away and, indeed, much of it may be gone forever. The impact on our economy has been immense and no more so that in the construction industry. From the start many sites shut down, employees have been absent or laid off. Cash flow, a perennial problem, has become a deepening crisis. The signs are that things are unlikely to improve soon. COVID will be with us for months, even years, ahead.
Most construction businesses, from the largest to the smallest, have been experiencing considerable difficulties, the likes of which they have never faced before. It is, however, the plight of the smaller businesses that is at the forefront. SMEs need a constant flow of cash to secure their short-term future. In many cases businesses measure their ability to survive without a continuous flow of cash in weeks, not months.
The measures the Government put in place to keep money flowing to industry employers and workers have been bold and necessary. They have clearly been intended to ensure those who need help benefit from the measures quickly. Yet in reality SMEs’ high dependency on free cashflow is not helped when the amount of monies they claim they are owed, or are being asked to pay, are disputed. Getting disputes resolved quickly and cost-effectively has quickly become an imperative to survival.
All construction contracts in the UK enable parties to resolve disputes about payment and other matters using adjudication. However, adjudication in 2020 is not the quick and cost-effective mechanism that Parliament envisaged when the Construction Act came into force in the 1990s. Then there was real excitement that businesses, who really needed it, had been given access to a quick and effective way of getting issues resolved and getting paid. Adjudication promised, and perhaps for a while delivered, a simple procedure for dealing with problems around payment, whilst avoiding delays with the contract works.
But adjudication has evolved, and many SMEs now feel they cannot participate in adjudication because it has become an unnecessarily complicated, expensive and resource sapping process. Many disputes which involve SME’s are concerned with claims which are relatively small but involve money which is often crucial to the survival of these businesses. They feel that adjudication has become “litigation light”. It is no longer cost-effective if the sums in dispute are below £50,000. The result is that many small businesses are disenfranchised from adjudication.
Last year, before we had any inkling that a pandemic was on the way, the Construction Industry Council (CIC) decided to develop a simple and inexpensive procedure for adjudicating low value disputes, that was Construction Act compliant. They set up a working party to scope what is now known as the CIC Low Value Disputes Model Adjudication Procedure (LVD MAP), which was launched in May 2020.
Some key organisations, including my employer RICS, have given their support to LVD MAP. They have been quick to implement the service at a time when it is very much needed.
By October 2020, RICS has appointed around 60 adjudicators under the LVD MAP, and we are now seeing about 10 applications per week. We anticipate that other ANBs will follow the RICS lead and ensure parties have access to adjudication by eminently qualified adjudicators who are willing and able to adjudicate under the low value procedure.
The service is aimed at disputes where the amounts claimed are for £50,000 or less, and the issues in dispute are relatively uncomplicated. It is anticipated that most adjudications will be conducted on a documents-only basis. The procedure complies with the Construction Act and includes an uncomplicated timetable and structure. It provides a flexible, yet simple to understand, approach to the key elements of the adjudication process and can reduce the amount of reliance parties may need to place on professional representation.
Crucially, the procedure is relatively inexpensive, the adjudicator’s fees are capped to a maximum of £6000. Both parties will know beforehand how much the adjudicator will charge and how much each of them will have to pay.
The Government has welcomed the development of the LVD MAP. Industry Minister, Nadhim Zahawi, said: “This new, more transparent process will offer access to justice for small and medium sized companies in the construction industry - helping ensure small disputes are resolved quickly, cheaply and effectively”.
The challenges going forward are to encourage more parties to use LVD MAP and to also ensure adjudicators understand how it works and are prepared to act under the procedure.
We also need adjudicators who will act robustly and keep to the LVD MAP framework, or as close as possible, even when pressured by parties who don’t agree to use it. Adjudicators who are appointed to act under the LVD MAP, typically following an application to an ANB by and SME, should not be bullied or harassed into adopting long drawn out procedures by respondents who say they will not agree to follow the LVD MAP. Ultimately, an adjudicator is required to adopt a procedure relative to the dispute that avoids unnecessary expense. Also, the procedure the adjudicator adopts is a matter for the adjudicator to decide, not the parties. So, what happens if one party, usually the referring party, wants to go the LVD MAP route and the other one doesn’t agree? The answer must be that it is a matter for the adjudicator to determine if the LVD MAP is suitable for the dispute and, crucially, if it will help to avoid unnecessary costs. If the answers to both points is “yes”, the adjudicator should proceed under LVD MAP, even if the reluctant party protests.
LVD MAP may not appeal to some adjudicators given that the process expects adjudicators to only charge a maximum fee of £6000 and may face respondents who may refuse to cooperate. But it is no doubt that LVD MAP is a service that increasing numbers of businesses see as a lifeline to their future survival.
Martin Burns is Head of ADR Research and Development, RICS