Payments for construction contracts and statutory adjudication around the globe
It's nearly 30 years since construction adjudication was introduced to the United Kingdom as a result of the Housing Grants, Construction and Regeneration Act of 1996 (HGCRA), which came into force in 1998. Amendments were made to the Act in 2011; however, the main objective of the legislation is to ensure cash flow throughout the construction supply chain. The Act provides for clear payment provisions to be in all construction contracts, and where these are not included, default provisions are implied. Globally, several jurisdictions have followed suit with the more aptly named security of payment/prompt payment legislation. This article looks at construction payment and adjudication legislation in Singapore and Ontario, Canada alongside the UK. It identifies the main differences in these three jurisdictions in relation to the UK Act. There is no doubt that adjudication has been considered successful in the UK, but the model adopted in the UK has not been completely mirrored in the other two jurisdictions.
The UK Act sets out detailed payment provisions. Where these are not complied with in construction contracts, then a secondary piece of legislation, The Scheme for Construction Contracts, provides default payment provisions which are implied in construction contracts. Failure to follow the payment provisions or disputes relating to payment can be referred to an adjudicator to make a decision in 28 days (although typically this is extended, but only if the referring party agrees, to 42 days), which is binding unless the matter is referred to arbitration or court to be considered in full again. The UK Act provides for disputes to be referred ‘at any time’. So, historical matters can be adjudicated on much later than when the dispute actually arose. The legislation catches written and oral construction contracts. One of the most significant points about adjudication in the UK is that it is not restricted to payment disputes, as ‘any dispute’ can be referred to an adjudicator. Therefore, disputes about delays, prolongation costs, termination, repudiation, defects and the like, including damages for breaches, can all be referred.
Canada is one of the more recent jurisdictions to legislate for prompt payment and adjudication in the construction industry. Initially introduced in Ontario in 2019, under the Construction Act, R.S.O. 1990, c.C.30, other Provinces are coming on stream. Ontario has thus far not seen adjudication as popular as anticipated (adjudication also had an initially slow start in the UK before booming in popularity as confidence grew in the system). In Ontario, as in the UK, the Act builds on the certainty of payment terms, which are underpinned by a quick adjudication regime if not met. The Ontario Dispute Adjudication for Construction Contracts (ODACC) is the Authorised Nominating Authority (ANA) that controls the process.
ODACC administers the adjudication process with opposing parties filing their claim via a portal, and ODACC takes a percentage of the adjudicator’s fees. It holds a list of adjudicators and appoints one unless the parties agree an adjudicator; naming an adjudicator in your contract in Ontario is expressly prohibited, unlike the UK where this is allowed. In the UK, there are several nominating bodies, but they do not administer the process – they provide selection services if parties cannot agree on an adjudicator.
In Ontario, the decision is to be reached within 30 days of receipt of claim although, again, this period is extendable, but in Ontario both parties’ agreement is required. Also, and in contrast to the UK, if the losing party fails to pay within 10 days, the winning party can cease working on the project until payment with interest and reasonable costs of the suspension/resumption of work are made.
Ontario is prescriptive about the types of disputes that can be referred to adjudication, with the list covering different types of payment disputes. There is a possibility for ‘any other matter’ to be referred to adjudication, but only with parties’ agreement. Whilst this provides an option to adjudicate a wider scope of disputes, the reality of parties agreeing may be a difficult obstacle in practice. As in the UK, only a single dispute can be referred to adjudication unless the parties agree otherwise.
Turning to Singapore’s Building and Construction Industry Security of Payment Act (SOPA) 2004. As the name suggests, this Act, which was amended in 2018, concentrates on payment disputes alone and, therefore, does not have the same ambit in the industry as the UK Act. SOPA only applies to written contracts but, unlike the UK, it does include ‘supply only’ contracts for construction projects based in Singapore or where the parties are both based in Singapore.
As with the UK Act, SOPA provides a statutory right to payment and includes adjudication as a speedy dispute resolution framework. Before embarking on the adjudication option, SOPA has a strict regime that must be followed to crystallise any dispute between the parties. In the first place, and in contrast with the UK legislation, only a claimant can refer a dispute to adjudication. To do so, four steps must be followed – the claimant issuing a payment application, the respondent issuing a response, or failing to issue a response in the set time period, followed by seven days for potential dispute settlement. If the dispute is not resolved, it can be referred to adjudication within a period of a further seven days. This highlights the importance of a current dispute being referred immediately, although there are some options to refer a claim for payment later, but these are restricted.
Another restriction is that the 2018 amendments have clarified that adjudication is for simple payment claims. The amendments make it clear that all claims for damages and loss or expense are excluded from adjudications unless an agreement on these claims can be shown or such claims are supported by a certificate or document required to be issued under the construction contract.
Adjudications are administered by the Singapore Mediation Centre (SMC). Applications are lodged with the SMC, who serve copies on the respondent and appoint an adjudicator. The respondent responds within seven days. A respondent cannot introduce a new argument or defence for nonpayment in the adjudication that was not provided at the earlier stage. The 2018 amendments have clarified that a further objection can be introduced when the circumstances of that objection only arose after the respondent provided the relevant payment response to the claimant or the respondent could not reasonably have known of the circumstances when providing the initial payment response. This again contrasts with the UK, where any defence is permitted once the adjudication process is commenced.
The adjudicator makes the determination within seven days after the expiry of the time for a payment response to the claim (if no response or no payment) or, in most cases, within 14 days after the expiry of the time for a response to the claim. The period can be extended when requested by the adjudicator and agreed to by both parties. As in Ontario, in Singapore a claimant can suspend works on-site if payment of an adjudicator determination is not made timeously.
An interesting feature of SOPA is if the determination is challenged, there is a limited period of seven days in which either party can apply for it to be reviewed. However, this is not an open forum and is restricted to cases where the amount determined varies by more than a prescribed figure from that claimed by the claimant or responded to by the respondent. In addition, the respondent has to pay the adjudicated amount to the SMC before applying for a review. The review process is to be completed within 14 days.
Finally, some comments on costs. In Singapore, parties bear their own costs, as is customary in the UK. As far as the adjudicator’s costs are concerned, these are regulated by a scale of fees published by the SMC, which provides hourly rates depending on the value of the dispute, with the overall fee capped at 10% of the claimed amount. Again, in common with the UK, the adjudicator’s fees are apportioned in the determination.
In Ontario, the parties to the adjudication pay their own costs and the adjudicator’s fee is split equally between them, but the adjudicator has some strong powers in this respect. Suppose an adjudicator concludes a party has acted in a frivolous or vexatious manner or has abused the process. In that case, the adjudicator may order that the party pay some or all of the other party’s costs and a proportion of the adjudicator’s fee that would have been for the other party to pay.
All the Acts have prompt payment provisions, which are then underpinned by the ability to invoke adjudication. In all three jurisdictions, this statutory right cannot be contracted out of. The speed of the process is not substantially different and is a benefit for all, but respondents can find themselves disadvantaged if they have not anticipated a dispute. The cost provisions make it accessible to those lower down the supply chain with less of a ‘fighting fund’. The main advantage of the Acts is the real purpose – improving cash flow in the construction industry. Payers cannot retain monies as easily without retribution. Whilst the legislation in the three jurisdictions considered has the same objective, the scope of the dispute is much narrower in Ontario and Singapore. In the UK, all kinds of construction disputes can be referred to adjudication, with the Courts acknowledging that complexity and constraints of time are inherent in the process but are no bar in themselves to adjudication enforcement. All three jurisdictions provide interim binding determinations. Perhaps as the UK adjudicates all types of disputes, its experience that the vast majority of adjudications conclude the dispute without reference to court or arbitration is not unusual. In jurisdictions where it is payment only, many other matters may still fester.
About the author: Janey L. Milligan LLM FCIArb FRICS is Managing Director of Construction Dispute Resolution, which she founded in 1997. She qualified as a Chartered Quantity Surveyor in 1985. Janey is regularly appointed or agreed as Adjudicator and is on the Ciarb, RICS, RIBA, CIOB, Scottish Building and HKIAC panels of Adjudicators. She also sits on the Ciarb and RICS panels of Arbitrators issuing Awards on construction related issues. Janey is a member of the Ciarb Adjudication Specialist Group, past Chairman of RICS in Scotland (2007-2008) and was a Director of the Scottish Arbitration Centre from March 2011 until December 2022. She currently sits as Independent Complaints Reviewer for SafeDeposits Scotland and New Homes Ombudsman Service in Scotland
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