No win no fee adjudication: Is the current cost of adjudication too high?
Multiple submissions, jurisdiction challenges and hearings are now the order of the day and, perhaps not surprisingly, many companies are simply shying away from using a process which, although arguably introduced for their benefit, is now one which is fraught with difficulties.
We understand that many parties are not prepared to run their claims in adjudication because of perfectly valid concerns over the cost of the adjudication process. However, in our opinion, adjudication still remains the most effective form of alternative dispute resolution (“ADR”), and consequently the industry has had to react to the current position.
What costs are involved in adjudication?
When assessing the potential costs of adjudication to the parties involved, there are two very distinct categories of cost to consider. These are the adjudicator’s fee and the party representation costs. Addressing these in turn:
Whilst the Adjudicator’s fee can be substantial, our experience shows that in the case of large value disputes, the fee charged is more often than not reasonable and in proportion with the amount in dispute. The advent of The Low Value Model Adjudication Procedure (“LVDMAP”) introduced by the Construction Industry Council (“CIC”), and adopted by most adjudicator nominating bodies such as the Royal Institution of Chartered Surveyors (“RICS”), provides capped fees for adjudicators on a sliding scale for lower value disputes. This is a welcome attempt to provide a process for ensuring that the adjudicator’s fee is not prohibitive to parties wishing to refer lower value disputes to adjudication. We believe this will both encourage and assist smaller contracting organisations to resolve construction disputes through the adjudication process and may pave the way for further initiatives of this type in the future.
It is also not always appreciated that the adjudicator has the power to “determine how the payment is to be apportioned”. This enables the adjudicator to apportion his/her fee in a manner which he or she deems fit. In our experience, this will generally mean that the adjudicator’s fee will follow the result, which can provide a certain level of comfort to those progressing a valid case. In other words, if you win your case, the other side will be ordered to pay the adjudicator’s fee.
The second element of costs is of course the cost of representation. Whilst the law provides that parties do have the ability to agree that an adjudicator can order that one party is to pay the other party’s representation costs, in practice such agreements are rare. It is invariably the case that each party will pay their own representation costs.
At present there are no set procedures, rules, or limitations relating to party representation costs within adjudication. Consequently, and for the reasons set out above (multiple submissions, jurisdictional challenges, hearings etc.), the cost of representation can pose a substantial financial risk to a party who is considering referring a dispute to adjudication.
Under normal circumstances, both parties to the dispute are expected to make a financial commitment to their representatives to cover the costs associated with drafting submissions, providing ongoing advice, representation at hearings and in the overall case management. This can be a significant investment and, without any guarantee of success, could, in many instances, dissuade subcontractors and contractors alike from seeking a resolution to a construction dispute through the adjudication process.
In the current climate, and with the number of construction companies expected to encounter financial difficulties in the next 12 months rising, this situation is damaging to our industry and action is needed.
No win no fee adjudication
As a demonstration of our commitment to our clients, Gateley Vinden has made the decision to offer the industry adjudication representation on a “no win no fee” basis. Whilst we would never advise a client to commence an adjudication that we did not believe in, we believe that we need to go one step further as a party representative and, in appropriate circumstances, to share the financial risk in the adjudication process.
This is how the arrangement works. We will undertake an initial assessment of the issues in dispute on a fixed fee basis. This initial assessment is critical in allowing us to provide an expert view on the strengths and weaknesses of the claim and whether adjudication is truly a viable route to resolve the dispute. At this point we will offer our clients a menu of options which will include a "no win no fee" arrangement, with Gateley Vinden taking an agreed percentage of the adjudicator’s decision. Other menu options will include reduced time charges and a reduced percentage of the award, a fixed fee for the adjudication, or normal time charges. The client decides which option it prefers.
Offering clients a flexible approach to fees, with different levels of risk participation, is Gateley Vinden’s way of demonstrating that it is listening to industry concerns. We do not believe that smaller contracting organisations and specialist subcontractors should be restricted from exercising their statutory right to resolve construction disputes through the process of adjudication and recover their true financial entitlement.
For a private and confidential discussion on any dispute you are involved in, please contact us:
Head of Dispute Resolution