The development of standard terms to satisfy the requirements of the Housing Grants, Construction and Regeneration Act 1996

Henry Sherman looks at the development of standard terms to satisfy the requirements of the Housing Grants, Construction and Regeneration Act 1996

Both the survey of the construction industry in our last issue and Martin Fox's article in this bulletin sound a note of warning as to the operation of statutory adjudication. One reason for this cautious approach arises from the way in which the industry has decided to apply the Act.
It is worth reminding ourselves in this context that the actual wording of the adjudication provisions in the Act is both brief and very general in character. For example, adjudication itself is not expressly defined and no rules are laid down as to procedure. In fact, the Act devotes less than one page to the provisions intended to govern the adjudication process as against two pages devoted to extensive definitions of the types of contract to which the Act applies. The wording of the Act was of course subject to fierce debate during its passage, as a result of which the last Government and its successor were alerted to pretty well all the difficulties of the Act with which the industry is now wrestling. The decision was, however, made at the time that the adjudication provisions should be drafted in very general terms in order to ensure maximum flexibility and user friendliness.

Differing approaches

One consequence of this decision has been the publication of a profusion of different procedures which are now available with the aim of ensuring that construction contracts comply with the Act. In addition to the statutory Scheme produced by the Government, adjudication rules have been published for incorporation, for example, into JCT, ICE and NEC forms of Contract, while sets of rules have also been produced by the CIC for use in Consultants' appointments, by the Official Referees' Solicitors Association (ORSA) and by a leading ADR body, CEDR.
These procedures contain a wide variety of provisions. For example (and controversially) the ICE and NEC rules require disputes to go through an initial qualification process before they are referred to an adjudicator - in the case of the ICE, by prior reference
to the Engineer. Other rules have no such preconditions. The rules also deal in a variety of ways with such issues as adjudication procedures, evidence, costs and enforcement. To help readers get to grip with these differences we have prepared a comparative table which follows this article and which summarises the main provisions of the principal sets of rules currently in use.

Enforcement

As will be seen from our table, these variations result in potentially significant differences between the operation of the various sets of rules. Of these, the key issue is enforcement - how easy is it for the successful party to turn an adjudicator's decision into practical reality? The Act says simply (Section 108(3)) that "the decision of the adjudicator is binding until the dispute is finally determined ..." by litigation, arbitration or by agreement. However, nothing is said about how the decision can be enforced or about the possible effect on the decision of a set-off or other cross-claim.
With one exception, the rules do not really tackle this issue. The Government Scheme provides that a refusal to comply may be a contempt of court but this somewhat tortuous approach is not the same as money in one's pocket. The majority of other rules provide simply that the winning party has the right to take proceedings or to "seek summary enforcement" (which they would have had anyway ...) and all but one set of rules are completely silent on the question of set-off. The combined effect of uncertain enforcement procedures and possible set-off rights could be said to rob adjudication of much of its value, particularly to those further down the contractual chain who are most likely to require its assistance. Only the ORSA rules provide a clear right to summary enforcement without set-off and are therefore arguably most faithful to the intentions of Latham and the legislature.
Good intentions are all very well, it may be said in response, but the stakes in an adjudication can be extremely high and the effects of an enforceable adjudication decision potentially far reaching. In the construction industry, as elsewhere, only a small percentage of disputes, however large and complex, are in fact pursued all the way to judgment or arbitration award. As a result, an early finding by the Adjudicator resulting in significant payment could, for better or worse, often represent the last word in that dispute unless the decision can be challenged by whatever means available and all of the common adjudication procedures, with the exception of the ORSA rules, provide extensive scope for challenges of this kind.
Some clients, whether imbued with the spirit of Latham or because they are looking for certainty (or both), have asked us to draft clear workable procedures which meet both the letter and the clear aims of the Act. Others, however, have sought a degree of protection from payment at the expense, it could be said, of the Act's intentions. The construction press has recently highlighted a number of sub-contract terms prepared by major contractors which push back the date of any payment, in one case until after practical completion and in another until after a final arbitration award. This point may of course only be reached years after the event even if the sub-contractor concerned has the means and determination to pursue its claim that far. Other examples of inventive drafting are not hard to find. All concerned, however, maintain that their forms comply with the Act and, given its very loose wording, it is in some cases hard to disagree.

Are the "wheels coming off"?

As a result, Building magazine concluded in a recent issue that "the wheels are coming off the whole ... package." One answer to this would be a high
profile test case which would enable a Court to decide once and for all on the proper interpretation of the Act. This would, however, be expensive and is in any case likely to confirm the widely held view that the Act is simply too generally worded to have the necessary teeth if parties are determined to get around it. Another solution, floated by Building, is an amendment to the Act requiring payment under an adjudicator's decision within seven days and in effect guaranteeing summary judgment free from set off in the event
of non-payment.
Unfortunately, while anything short of legislative amendment is unlikely to be effective, the chances of this happening must be very small at least in the immediate term given the many other pressures on Parliamentary time. Growing disaffection with the Act over the coming months might prompt action at a later date. What can be said with confidence at this stage is that, as predicted by respondents to our survey, the problems of translating this Act into practice are unlikely to go away.