adjudication following the latham review

1. 10th Adjudication Update Seminar 08.11.04 ADJUDICATION FOLLOWING THE LATHAM REVIEW Graham Watts Chief Executive Construction Industry Council Chairman, Construction Umbrella Bodies (CUB) Adjudication Task Group Pleased to have this opportunity of discussing the Review and its recommendations relating to adjudication. Will explain a little about the wonderfully named CUBATG later. Only too aware that I am in the unenviably position of addressing a gathering about a subject upon which they are certainly more expert than I am! Pleased to have this opportunity of discussing the Review and its recommendations relating to adjudication. Will explain a little about the wonderfully named CUBATG later. Only too aware that I am in the unenviably position of addressing a gathering about a subject upon which they are certainly more expert than I am!

2. 10th Adjudication Update Seminar 08.11.04 Huge raft of information about adjudication in the context of this review. Best to focus on a few key documents and I have chosen these five sources of reference around which to structure this talk. Huge raft of information about adjudication in the context of this review. Best to focus on a few key documents and I have chosen these five sources of reference around which to structure this talk.

3. 10th Adjudication Update Seminar 08.11.04 Budget 2004 Section 3: meeting the productivity challenge Para 3.59 �� following concerns expressed by the construction industry on unreasonable delays in payment, the Government will review the operation of the adjudication and payment provisions in the Housing Grants, Construction and Regeneration Act 1996 to see what improvements can be made�. Start with the Budget Statement from 17 March 2004. Many calls for a Review of the Construction Act � some people believed that an early Review had been promised by the Government in 1998 when the Act took effect. No-one has any evidence of this. Important in Government terms that the call for this current Review came from the Chancellor. There must be a response by the time of the Budget in 2005 � not something that can be kicked into the long grass. The emphasis on adjudication in the text is mine � you will see why very shortly!Start with the Budget Statement from 17 March 2004. Many calls for a Review of the Construction Act � some people believed that an early Review had been promised by the Government in 1998 when the Act took effect. No-one has any evidence of this. Important in Government terms that the call for this current Review came from the Chancellor. There must be a response by the time of the Budget in 2005 � not something that can be kicked into the long grass. The emphasis on adjudication in the text is mine � you will see why very shortly!

4. 10th Adjudication Update Seminar 08.11.04 DTI �kick-off� letter �the Chancellor announced a review of payment provisions�� DTI to run Review Latham to chair Review Detailed Timetable A week after the Budget Statement, Sir Michael Latham, wrote on DTI notepaper to key industry bodies. Nothing more than a Freudian slip that the letter indicated that the Chancellor had announced a review of payment provisions � merely indicating the strength of the payment issue within Government. DTI would run the Review. Sir Michael would chair it. Detailed timetable set down in the letter.A week after the Budget Statement, Sir Michael Latham, wrote on DTI notepaper to key industry bodies. Nothing more than a Freudian slip that the letter indicated that the Chancellor had announced a review of payment provisions � merely indicating the strength of the payment issue within Government. DTI would run the Review. Sir Michael would chair it. Detailed timetable set down in the letter.

5. 10th Adjudication Update Seminar 08.11.04 Review Timetable End April - First meeting End July - Reports from work groups Early September - Agree options Early October - Publish consultation paper End March �05 - Implementation starts This timetable was set to enable the whole Review to take a year from start to finish. This would probably enable the Chancellor to announce action in the Budget Statement for 2005. This would enable implementation to beat the deadline imposed by the next General Election. Things haven�t quite turned out this way.This timetable was set to enable the whole Review to take a year from start to finish. This would probably enable the Chancellor to announce action in the Budget Statement for 2005. This would enable implementation to beat the deadline imposed by the next General Election. Things haven�t quite turned out this way.

6. 10th Adjudication Update Seminar 08.11.04 Review Group meeting � 29 April Not a personal review Establish two sub-groups for Review - Payment Group chaired by Richard Haryott - Adjudication Group chaired by Graham Watts Agreed timetable Sir Michael at great pain to say that this is not Latham mark 2. It is not a personal review; it is not an industry review of itself; nor even a joint industry/government review. Very clearly a Government-inspired review. Two sub-groups established. Timetable agreed. For the purposes of this presentation, I am going to focus entirely on the adjudication group�s output since (a) I was only a bit player in the other group and (b) it would take all night!Sir Michael at great pain to say that this is not Latham mark 2. It is not a personal review; it is not an industry review of itself; nor even a joint industry/government review. Very clearly a Government-inspired review. Two sub-groups established. Timetable agreed. For the purposes of this presentation, I am going to focus entirely on the adjudication group�s output since (a) I was only a bit player in the other group and (b) it would take all night!

7. 10th Adjudication Update Seminar 08.11.04 CUB Adjudication task force Existed since 2001 Guidance for Adjudicators (June 2002) Users� Guide to Adjudication (April 2003) Enhanced Membership for Review Invited views from other bodies CUB is a representative forum for the leading umbrella bodies in the industry such as CIC, The Construction Confederation and the CPA. It took over the pan-industry responsibility for overseeing adjudication issues following the demise of the Construction Industry Board in 2001. It was already well-established having had 21 meetings up until the Review was announced and had been pressing the DTI for a review of the adjudication provisions in the Act and Scheme. Therefore had a running start at the issues. Published Guidance for Adjudicators in June 2002 and the Users Guide in April 2003. Both are currently being reviewed for updated editions. TeCSA, FMB and SCIG invited to join for the review. Tremendous contribution from Dominic Helps and Caroline Cummings of TeCSA, including a very comprehensive compendium of case law that has influenced the development of adjudication.CUB is a representative forum for the leading umbrella bodies in the industry such as CIC, The Construction Confederation and the CPA. It took over the pan-industry responsibility for overseeing adjudication issues following the demise of the Construction Industry Board in 2001. It was already well-established having had 21 meetings up until the Review was announced and had been pressing the DTI for a review of the adjudication provisions in the Act and Scheme. Therefore had a running start at the issues. Published Guidance for Adjudicators in June 2002 and the Users Guide in April 2003. Both are currently being reviewed for updated editions. TeCSA, FMB and SCIG invited to join for the review. Tremendous contribution from Dominic Helps and Caroline Cummings of TeCSA, including a very comprehensive compendium of case law that has influenced the development of adjudication.

8. 10th Adjudication Update Seminar 08.11.04 CUB Report 29 July Modus Operandii Three full meetings Need for consensus - Green - Amber - Red Because of the running start we needed only three meetings � the payment group had to have seven! The need for consensus was uppermost in our brief and we developed a traffic light system to deal with issue. Green = unanimous view Amber = strong support but not unanimous Red = only support from one sectoral body �Red� issues were dropped and not included in our report. �Amber� issues were included with references to the diverse points of view. Because of the running start we needed only three meetings � the payment group had to have seven! The need for consensus was uppermost in our brief and we developed a traffic light system to deal with issue. Green = unanimous view Amber = strong support but not unanimous Red = only support from one sectoral body �Red� issues were dropped and not included in our report. �Amber� issues were included with references to the diverse points of view.

9. 10th Adjudication Update Seminar 08.11.04 CUB Report 29 July Major Issues Adjudication Working Well Need for further guidance 19 �green� recommendations 8 �amber� recommendations All of those who responded to the group and the members of the group itself felt that the adjudication process is working well and probably better than anyone anticipated at the outset. Concerns were expressed about the quality of adjudicators and the group felt that this could be best dealt with through training and additional guidance. The group was able to go further than it had gone prior to the review in terms of consensus and was able to put forward 19 unanimous recommendations and 8 which had a reasonable measure of cross-industry agreement but were not unanimous. All of those who responded to the group and the members of the group itself felt that the adjudication process is working well and probably better than anyone anticipated at the outset. Concerns were expressed about the quality of adjudicators and the group felt that this could be best dealt with through training and additional guidance. The group was able to go further than it had gone prior to the review in terms of consensus and was able to put forward 19 unanimous recommendations and 8 which had a reasonable measure of cross-industry agreement but were not unanimous.

10. 10th Adjudication Update Seminar 08.11.04 CUB Report 29 July Further Guidance Improve Quality of Adjudicators More training & guidance on: - dealing with late/inadequate submissions - adjudicator�s power to take the initiative to ascertain the facts/the law - appointment of experts, assessors and legal advisers - fees Improve Guidance for users - assess whether adjudication is right for them Dealing with the need to improve the quality of adjudicators. The Group felt that better timing and guidance were necessary in a number of specific areas and has agreed that each of these areas will be covered in a second edition of the Guidance for Adjudicators and will be specifically addressed to the ANBs. It was also identified that there is a need for further guidance to enable those in dispute to assess whether adjudication is the most appropriate route for resolving their dispute. This will be addressed in a second edition of the Users� Guide.Dealing with the need to improve the quality of adjudicators. The Group felt that better timing and guidance were necessary in a number of specific areas and has agreed that each of these areas will be covered in a second edition of the Guidance for Adjudicators and will be specifically addressed to the ANBs. It was also identified that there is a need for further guidance to enable those in dispute to assess whether adjudication is the most appropriate route for resolving their dispute. This will be addressed in a second edition of the Users� Guide.

11. 10th Adjudication Update Seminar 08.11.04 CUB Report 29 July Recommendations � Scope Case to consider removing exclusion for PFI contracts Case to consider removing the residential occupier exclusion Law needs to be clarified in relation to �evidenced in writing� Case to consider deleting process plant exclusions Scope was an important issue for my group since Sir Michael decided that it would be the adjudication group that would recommend on issues of scope. There was only one clear green light on the issues of scope. This was the need to clarify the law in relation to what is intended by �evidenced in writing�, particularly in the light of the very narrow interpretation given in the decision in RJT Consulting Engineers v. DM Engineering (NI) Ltd. However, there is NO agreement about what this clarification should be! One group believes it should be limited to contracts wholly in writing only; another believes that (as in Australia and NZ) wholly oral contracts should be encompassed whilst the majority feel that the clarification lies somewhere between these extremes. The group agreed that there is a case to consider removing the exclusion for PFI contracts and for residential occupier contracts � the CC reserved their position since they believed that the scope issues should be considered in relation to the payment provisions as well as the adjudication provisions. The majority of the group also felt that there is a case to consider removing the exclusion relating to process plant issues but the CC did not support this view.Scope was an important issue for my group since Sir Michael decided that it would be the adjudication group that would recommend on issues of scope. There was only one clear green light on the issues of scope. This was the need to clarify the law in relation to what is intended by �evidenced in writing�, particularly in the light of the very narrow interpretation given in the decision in RJT Consulting Engineers v. DM Engineering (NI) Ltd. However, there is NO agreement about what this clarification should be! One group believes it should be limited to contracts wholly in writing only; another believes that (as in Australia and NZ) wholly oral contracts should be encompassed whilst the majority feel that the clarification lies somewhere between these extremes. The group agreed that there is a case to consider removing the exclusion for PFI contracts and for residential occupier contracts � the CC reserved their position since they believed that the scope issues should be considered in relation to the payment provisions as well as the adjudication provisions. The majority of the group also felt that there is a case to consider removing the exclusion relating to process plant issues but the CC did not support this view.

12. 10th Adjudication Update Seminar 08.11.04 CUB Report 29 July Recommendations � Act Cost Outlaw the practice of one party requiring that the referring party pays both parties� costs irrespective of outcome Parties have freedom to agree that the adjudicator may award the parties legal costs There was strong unanimous support to outlaw the practice of one party requiring that the referring party pays both parties� costs irrespective of the outcome � the so-called Bridgeway v. Tolent type provisions � in both the Act and Scheme. This is an issue that the group has campaigned on for some time, securing an announcement from the then Construction Minister, Brian Wilson MP, in July 2002 that the Government intended to make an appropriate amendment when the means of doing so became available and this intention was confirmed by the current Minister when the CUB group met him in October 2003. All but two of the group members feel that the parties should be free to agree that the adjudication may award the parties legal costs provided that the agreement is reached after the dispute has been referred. However, the specialist contracting and sub-contracting sectors believe that it should always be the case that the parties will bear their own costs and that, even after the dispute has arisen, commercial pressure can be put on parties to reach agreement.There was strong unanimous support to outlaw the practice of one party requiring that the referring party pays both parties� costs irrespective of the outcome � the so-called Bridgeway v. Tolent type provisions � in both the Act and Scheme. This is an issue that the group has campaigned on for some time, securing an announcement from the then Construction Minister, Brian Wilson MP, in July 2002 that the Government intended to make an appropriate amendment when the means of doing so became available and this intention was confirmed by the current Minister when the CUB group met him in October 2003. All but two of the group members feel that the parties should be free to agree that the adjudication may award the parties legal costs provided that the agreement is reached after the dispute has been referred. However, the specialist contracting and sub-contracting sectors believe that it should always be the case that the parties will bear their own costs and that, even after the dispute has arisen, commercial pressure can be put on parties to reach agreement.

13. 10th Adjudication Update Seminar 08.11.04 CUB Report 29 July Recommendation � Act Single Adjudication Procedure Section 108 should outlaw unacceptable provisions by tightening up on the minimum requirements for a compliant procedure There should be a single procedure Everyone agrees the generic issue that Section 108 should be extended to outlaw provisions which are unacceptable by tightening up on the minimum requirement for a compliant procedure. There are strong views from a number of bodies that there should be a single statutory adjudication procedure � however, CIC, CECA and TeCSA are not in favour of a single procedure.Everyone agrees the generic issue that Section 108 should be extended to outlaw provisions which are unacceptable by tightening up on the minimum requirement for a compliant procedure. There are strong views from a number of bodies that there should be a single statutory adjudication procedure � however, CIC, CECA and TeCSA are not in favour of a single procedure.

14. 10th Adjudication Update Seminar 08.11.04 CUB Report 29 July Recommendations � Act Immunity/Independence Consider the introduction of statutory protection for adjudicators Provide a clearer definition of the term �independent� The Task group believes that further consideration should be given to the introduction of statutory protection for adjudicators in line with that provided to arbitrators under Section 29 of the Arbitrators Act. There is also a unanimous concern that the term �independent� is not capable of a clear definition as things stand and that Para 4 of Part I of the Scheme provides the clear definition required and should be imported into Section 108 of the Act.The Task group believes that further consideration should be given to the introduction of statutory protection for adjudicators in line with that provided to arbitrators under Section 29 of the Arbitrators Act. There is also a unanimous concern that the term �independent� is not capable of a clear definition as things stand and that Para 4 of Part I of the Scheme provides the clear definition required and should be imported into Section 108 of the Act.

15. 10th Adjudication Update Seminar 08.11.04 CUB Report 29 July Other Recommendations � Act Amend Section 108(1) to include under or arising out of the contract Prohibit such devices as requiring payments to a trustee stakeholder account (or similar) Adjudicator should have a power to make full and final decision on their own jurisdiction for all purposes � or a power limited to certain circumstances The task group feels that the first point is necessary to provide desirable clarification. It recommends that the legislation should be amended to prohibit such devices as providing that monies should be paid into a trustee stakeholder (or similar) account since this is seen as a means of frustrating one of the principle intentions of Parliament i.e. to facilitate timely payment within the industry. Although most bodies do not agree that an adjudicator can have the power to make a full and final decision on their jurisdiction for all purposes, a majority are in favour of a limited power for the adjudicator to determine. Whether there is a construction contract and, if so, whether it is in writing for the purposes of Section 107; Whether a proper appointment has been made; and Whether there is a dispute under or in connection with the contract and, if so, what matters are in dispute. However, the CC and CCG are opposed to the adjudicator having any power to rule on their own jurisdiction. The task group feels that the first point is necessary to provide desirable clarification. It recommends that the legislation should be amended to prohibit such devices as providing that monies should be paid into a trustee stakeholder (or similar) account since this is seen as a means of frustrating one of the principle intentions of Parliament i.e. to facilitate timely payment within the industry. Although most bodies do not agree that an adjudicator can have the power to make a full and final decision on their jurisdiction for all purposes, a majority are in favour of a limited power for the adjudicator to determine. Whether there is a construction contract and, if so, whether it is in writing for the purposes of Section 107; Whether a proper appointment has been made; and Whether there is a dispute under or in connection with the contract and, if so, what matters are in dispute. However, the CC and CCG are opposed to the adjudicator having any power to rule on their own jurisdiction.

16. 10th Adjudication Update Seminar 08.11.04 CUB Report 29 July Green Recommendations � Scheme enforce the principal that the parties will bear their own costs enable adjudicator to resign through lack of jurisdiction. reasons to be given unless the parties agree otherwise. express reference to the right to serve a response. express �slip rule�. express requirement that the adjudicator shall copy legal or technical advice to the parties. Several drafting amendments aimed at improving procedure for appointment, related disputes, payment of interest, enforcement, negligence. Not going to go through the Scheme recommendations in detail. Obviously they would have much greater impact if the government accepted that there should be only one statutory adjudication provision and indeed it was our lack of confidence in the prospect of a flawless scheme which led CIC to resist this recommendation. The main recommendations for the Scheme are fully detailed in our report to Sir Michael � many of the recommendations are drafting amendments designed to clarify and improve or back up proposed amendments to the Act. Four are working of particular note. The group believes that where an adjudicator decides in good faith that he does not have jurisdiction to decide the dispute before him he should resign and should be entitled to the fees due. The Task Group believes that the responsibility for reasons should be reversed � i.e. they should be provided unless the parties agree otherwise. The Group believes that there should be an express reference to the right to serve a response to the referral notice. The Group has also recommended specific wording to enable an adjudicator to put right errors in his decision through a so-called �slip rule�. Not going to go through the Scheme recommendations in detail. Obviously they would have much greater impact if the government accepted that there should be only one statutory adjudication provision and indeed it was our lack of confidence in the prospect of a flawless scheme which led CIC to resist this recommendation. The main recommendations for the Scheme are fully detailed in our report to Sir Michael � many of the recommendations are drafting amendments designed to clarify and improve or back up proposed amendments to the Act. Four are working of particular note. The group believes that where an adjudicator decides in good faith that he does not have jurisdiction to decide the dispute before him he should resign and should be entitled to the fees due. The Task Group believes that the responsibility for reasons should be reversed � i.e. they should be provided unless the parties agree otherwise. The Group believes that there should be an express reference to the right to serve a response to the referral notice.

17. 10th Adjudication Update Seminar 08.11.04 Latham Letter 17 September Key Points � General ��enquiry into payment and related issues�� A Government proposed and commissioned review. New option for making Regulatory Reform Orders under Regulatory Reform Act (2001). Adjudication = �agreed set of proposals�. Payment = �harder to reach consensus� Invite Government Consultation document Even at the late stage there is still a strong prejudice in favour of the importance of the payment issues. Reinforces the fact that this is a government review. Brings into play for the first time (at an official level) that Regulating Reform Orders could potentially be the appropriate mechanism for amending the legislation � a key point attached to this is that although the purpose of a RRO is specifically deregulatory and, of course, many of the recommendations from my group are designed to tighten or even extend the regulation, an RRO could be valid as a �package� even if only one part of the package is deregulatory. Reinforced the point that the adjudication group has arrived at an agreed set of proposals whereas it had been harder for the payment group to reach consensus. Limit the Government to view consultant paper. Even at the late stage there is still a strong prejudice in favour of the importance of the payment issues. Reinforces the fact that this is a government review. Brings into play for the first time (at an official level) that Regulating Reform Orders could potentially be the appropriate mechanism for amending the legislation � a key point attached to this is that although the purpose of a RRO is specifically deregulatory and, of course, many of the recommendations from my group are designed to tighten or even extend the regulation, an RRO could be valid as a �package� even if only one part of the package is deregulatory. Reinforced the point that the adjudication group has arrived at an agreed set of proposals whereas it had been harder for the payment group to reach consensus. Limit the Government to view consultant paper.

18. 10th Adjudication Update Seminar 08.11.04 Latham Letter 17 September Key Points � Adjudication Act has worked �generally very well�. Adjudication � �remarkably successful process�. Changes recommended � �to deal with those unforeseen issues which have arisen�. Not to alter general thrust of Act. Reinforce the intentions of Parliament.

19. 10th Adjudication Update Seminar 08.11.04 Griffiths Response 21 October Key Points � General Review is �valuable� Credit that Review generated so much agreement Excellent starting point for full consultation exercise Consultation paper will contain �detailed proposals to establish degree of support �for ... specific changes to the Act�. Amber issues are still under consideration. Objective �has to remain that of building further consensus wherever possible�. A press release was issued by the DTI to coincide with the letter received from Sir Michael but we waited a month for a formal response. Hints that the Consultation paper would contain detailed proposals for specific changes. Made it clear that all issues were still under consideration and that the objective of the consultation paper would have to be building further consensus wherever possible.A press release was issued by the DTI to coincide with the letter received from Sir Michael but we waited a month for a formal response. Hints that the Consultation paper would contain detailed proposals for specific changes. Made it clear that all issues were still under consideration and that the objective of the consultation paper would have to be building further consensus wherever possible.

20. 10th Adjudication Update Seminar 08.11.04 Griffiths Response 21 October Rules out Changes to Scope Extending Act to cover contracts for domestic customers Removing exclusion of head contracts under PFI Removing exclusion for operations related to process plant However, the Minister specifically ruled out any of the proposed changes to scope where in fact there had not been significant agreement on the task group. In particular he objected to: The implication of a commercial ADR process to domestic customers � shifting the balance away from the customer and towards industry. PFI contracts, in any event, require a detailed ADR mechanism and he is not aware of any fundamental weakness in the operation of these contracts Process plant is different and there is no evidence that the sector wants legislation.However, the Minister specifically ruled out any of the proposed changes to scope where in fact there had not been significant agreement on the task group. In particular he objected to: The implication of a commercial ADR process to domestic customers � shifting the balance away from the customer and towards industry. PFI contracts, in any event, require a detailed ADR mechanism and he is not aware of any fundamental weakness in the operation of these contracts Process plant is different and there is no evidence that the sector wants legislation.

21. 10th Adjudication Update Seminar 08.11.04 NEXT STEPS Complicated negotiations within Government - Inter-departmental - What can be done under RRA - Devolved Powers in Wales No consultation paper this side of 2005 No chance of action before next General Election