One of adjudication’s major attractions was supposed to be that it would provide a relatively cost effective as well as speedy route to freeing up cash flow logjams arising from disputes. The industry seems to be broadly agreed that it has produced relatively quick outcomes, but evidence on costs suggests that whereas it is cheaper than going to court it might still be too expensive for some.
A survey on adjudication costs just published by the Construction Dispute Resolution (CDR) shows the costs of an adjudicator averaging £210 an hour, with the highest fee found by their survey to be £46,000 for an adjudication that at three months went well beyond the statutory 28 days prescribed by legislation (see News).
The average was £8,878 and the average number of hours taken was 43. The value of disputes being adjudicated on ranged from zero when it concerned a matter of principle, to just under £6 million, with an average of some £344,000. The average sum awarded was £124,145.
This of course is by no means the total cost of adjudication. Parties tend to get lawyered up for advice ahead of the adjudication, and use lawyers throughout the process. Some of the preparation can be complex and time consuming – the survey highlights delay analysis for complexity – so legal bills can quickly mount up.
For many smaller companies the costs of adjudication are too high. Many of them might envy the rates being charged by adjudicators when comparing them to their own margins.
Costs are rising and recent suggestions on how to get over this have included having a lower tier of younger or less experienced adjudicators who would work for a smaller fee. Expect less competent decisions if that idea is taken up.
There are some obvious areas to focus on to encourage cheaper adjudications. Competition is a great force for keen prices and it seems that the number of adjudicators could be doing with beefing up. There appear to be few adjudication training courses and few young people or women are entering the ranks.
The current government consultation on how the 2011 changes to the Construction Act are working will investigate, among other things, the affordability of adjudication, which the CDR research is certain to inform. Questions will also be asked about possible misuse of adjudication and more generally its continuing relevance. Retentions, which according to many years of specialist contractor campaigning are subject to systematic abuse by main contractors, are also under scrutiny in a parallel consultation.
The government consultation paper that preceded the 2011 changes blamed what it called ‘coordination failures’ between contractors and sub-contractors for commercial disputes that had an estimated financial cost of around £40m in 2010. The proposal that things have improved significantly in the years since then would find few supporters.
Nick Barrett
Editor