This section contains information about adjudication and the security of payment legislation that has been enacted in the UK since 1996 and in Australia since 1999.
The Building and Construction Industry Security of Payment Bill 2009 (SA) was passed by the both houses of parliament on 3rd December 2009.
Adjudication is a relatively new method of resolving disputes in the construction industry. At its core is the notion that parties to a construction contract should have the right to have disputes resolved speedily and economically on a “pay now, argue later” basis by an independent person. The decision is immediately enforceable, but if the loser wishes, he can then have the dispute determined in the usual way – by litigation or arbitration – and recoup any overpayment. In this way, the adjudicator can work much more quickly than an arbitrator, and in practice, it is very rare for a loser to exercise his right to a subsequent full process if he thinks the adjudication has been conducted reasonably fairly.
Security of payment is now a misnomer. When New South Wales first introduced legislation in 1999, it experimented with a variation to the UK model, by allowing a party who lost an adjudication to provide security by way of guarantee, instead of making a cash payment to the winner. Unsurprisingly, this experiment was a failure, and was abandoned in New South Wales in 2002 and in Victoria in 2007. The name, however, has stuck, and is still used to mean the system whereby a party to a construction contract is entitled to certain rights, including a right to an adjudication of his claims to payment.
In Australasia, two distinct flavours of adjudication have emerged.
In the eastern states of New South Wales, Victoria and Queensland, the emphasis of the legislation is on default. If a party fails to get its paperwork in order on time, then it will lose by default, and a high proportion of adjudication decisions are for the whole of the sum claimed, without any evaluation of whether that sum is actually due. The prohibition on parties agreeing on the identity of the adjudicator has encouraged this aspect of the process.
In Western Australia, New Zealand, the Northern Territory and the UK, the emphasis is much more on a realistic evaluation of what is due to the claimant, and much less on default provisions. The parties are able to agree on who is to be the adjudicator, and especially in larger cases often agree on a competent independent person in whose judgement they both have confidence.
In December 2009, the South Australian parliament passed a Bill based on the East Coast model; see South Australian Adjudication Billboard.
Adjudication on the Western model has proved to be remarkably successful, and popular with owners, head contractors and subcontractors. In the UK, there are now about 8 construction disputes resolved by adjudication for every one dispute resolved by litigation or arbitration, and in Western Australia, there are now many adjudications, with remarkably few court challenges.
The legal cost of adjudication is typically around 10% of the cost of litigation or arbitration.
The East Coast model has been much less well received. There are still head contractors who say that any subcontractor who makes an adjudication claim will be blacklisted. There have been dozens of challenges to the process in the courts.
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