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Volume 264—NO. 28 monday, august 10, 2020 The Rise and Rise of Statutory Adjudication: Is the U.S. Ready?

By Steve Baldini and Hamish Lal

his article looks at the rise in the use of statutory adjudica- Ttion in various in the context of complex construction disputes and asks if the United States is now ready to also embrace this ADR option. Statutory Adjudication has taken off in the United Kingdom, Ireland, Hong Kong, Singapore, New Zealand, Malaysia, and Australia. Most recently, the Federal Prompt Payment for Construction Work Act and the Canadian Construction Act (2018) have introduced adjudication SHUTTERSTOCK in Ontario, Canada. While the United the context of construction con- Electrical Services Ltd v. Michael J States gave the world the concept of tracts—but the United States needs Lonsdale (Electrical) Ltd [2020] UKSC dispute review boards (DRBs) (first to decide if statutory adjudication 25 handed down on June 17, 2020 at used in 1975 with the second bore of ought to apply to all disputes that paragraph 10 gives a perfect defini- the Eisenhower Tunnel at Loveland arise in complex construction con- tion of statutory adjudication: Pass, Colorado) it has not embraced tracts (as in the United Kingdom) or Introduced as a statutory regime statutory adjudication. be limited to solely payment disputes by the 1996 Act, adjudication of con- The authors consider that there (as in Ireland); decide if statutory struction disputes has been a con- are compelling reasons and inflam- adjudication is limited to disputes spicuously successful addition to the matory markers that indicate that that arise prior to practical or sub- range of dispute resolution mecha- the United States is now ready to stantial completion; and codify how nisms available for use in what used embrace statutory adjudication in enforcement of adjudicators’ deci- to be an over-adversarial, litigious sions would work in practice. environment. It builds upon a pure- Steve Baldini and Hamish Lal are partners in Akin Gump’s litigation practice in New York and Lord Briggs sitting in the United ly contractual structure for adjudi- London, respectively. Kingdom Supreme in Bresco cation which was already by 1996 monday, august 10, 2020 regarded by many in the industry The claim is issued to the initial about payment it still leaves scope as best practice. decision maker (IDM). The IDM, for the parties to argue about the Speaking generally, adjudication is under §15.2.1, then has 30 days to precise meaning of ‘payment.’ For one of a spectrum of dispute resolu- issue a decision on a claim. Pursu- example, a narrow reading is taken tion mechanisms which range from ant to §15.1.4.2, the price to mean that a dispute can only be party and party negotiation at one and the time for completion shall referred to adjudication if it involves end, through , early neu- be adjusted in accordance with the the assessment, certification or pay- tral evaluation (ENE) and IDM’s decision. ment of sums that can be readily cal- to litigation at the other end, lying This is similar to adjudication in culated from the cost model in the roughly between ENE and arbitration. the sense that the IDM’s Decision contract. ENE delivers a private non-binding acts as an implied term adjusting the In contrast, the so-called ‘broad opinion on the merits of the dispute parties’ contract. Either party can reading’ allows the contractor to from an independent, respected and challenge the IDM’s decision through bring into the of dispute often expert source. the final dispute resolution process claims for additional loss/expense, Arbitration delivers a (usually) but the IDM’s decision will remain disputed variations, extensions of private determination from a simi- binding until a final award or - time and consequent prolongation. lar source which is binding subject ment has been issued. The architect Patently, the latter is more complex to very limited scope for appeal. and will require the adjudicator to Adjudication shares with ENE the evaluate facts, critical path activi- independent, often expert, respected There are compelling reasons ties, methods of delay analysis and source together with the speed and that indicate the United States possibly expert . economy of ENE, with a provisional is ready to embrace statuto- Further, based on United Kingdom element of binding decision, unless the ‘pay now argue and until the matter in dispute is ry adjudication in the context later’ model created the so-called later resolved by arbitration, by of construction . “smash and grab” problem—where litigation or by agreement. a contractor is able to claim payment Lord Briggs picks up the “indepen- is required to issue certificates for for the amount stated in an interim dent, respected and often expert” payment in accordance with the deci- application (whether or not it rep- characteristics of an adjudicator. sion of the IDM is not allowed to open resents the “true” valuation of the In the context of disputes, adjudi- up, review or revise the IDM’s deci- work) due to a procedural failure cators in practical terms have now sion—this is inherent in §15.1.4.2: by the paying party to serve either replaced outright engineers and The Contract Sum and Contract a payment notice or a withholding architects who were often found to Time shall be adjusted in accor- notice/pay less notice. be the professional contract admin- dance with the Initial Decision The Court of Appeal in England istrator in the various standard form Maker’s decision, subject to the and Wales in S&T (UK) Limited v. construction contracts. right of either party to proceed in Grove Developments Limited, [2018] In a similar way the AIA document accordance with this Article 15. EWCA Civ 2448 clarified the issues: issued by The American Institute of The Architect will issue Certifi- Employers, owners, payers faced Architects has developed a system cates for Payment in accordance with a smash & grab adjudication where an independent person does with the decision of the Initial decision who commence a second not replace the Architect but co- Decision Maker. adjudication (seeking a decision on exists with the Architect. The AIA the ‘true’ value of the amount due to provision provides a ‘pay now argue Payment Disputes Only? the contractor) are allowed to adju- later’ mechanism whereby the con- Based on jurisprudence from other dicate the same interim certificate tractor can secure payment based jurisdictions, whether statutory adju- on the “true” value of an amount upon its claim during the dispute. dication is limited to only disputes due, but cannot start that second monday, august 10, 2020 adjudication until payment in full has the U.S. model want to limit, then 564 (Mass. Super. 2001); 2001 Mass. been made on the first adjudication the comments of Lord Ackner (made Super. Lexis 412 (Perini 1); Massachu- (which leaves open the insolvency when the bill that lead to the United setts Highway Dept. v. Perini Corp., 14 risk). Kingdom passed through the Mass L. Rep. 452 (Mass. Super. 2002); upper chamber of the ) 2002 Mass. Super. Lexis 110 (Perini Adjudicate at Any Time? will be instructive (and allow the con- 2); Massachusetts Highway Dept. v. Another issue (and one related to cepts of of dissatisfaction): Perini Corp., 828 N.E. 2d 34 (Mass. the scope of disputes that can be What I have always understood 2005). The Massachusetts referred) is whether the right to refer to be required by the adjudication ruled that DRB decisions could be a dispute to statutory adjudication process was a quick, enforceable confirmed on an expedited basis with can be exercised at any point in the interim decision which lasted until the court noting: life of the construction dispute or practical completion when, if not The court tends to agree with whether it should limited to the con- acceptable, it would be the subject [Perini’s] observation that sum- struction phase? This is a question matter of arbitration or litigation. mary motions are not for the relevant . In the That was a highly satisfactory pro- really the correct vehicle [sic] United Kingdom, under the Housing cess. It came under the rubric, ‘pay for what is now before the Court. Grants, Construction and Regenera- now, argue later’ which was a sen- Rather, under both the Federal tion Act 1996 the courts have held sible way of dealing expeditiously and Massachusetts Arbitration that a notice of adjudication can be and relatively inexpensively with Acts, at this stage of a proceeding issued at any time (i.e. after prac- disputes which might hold up the like that before the Second DRB, tical completion and after the final completion of important contracts. the court really must confirm the account). Lord Briggs, in Bresco award, vacate it or send it back Electrical Services Ltd v. Michael Giving Effect for further proceedings. Whatever J Lonsdale (Electrical) Ltd [2020] To Adjudication Decisions the titles of the motions, it is the UKSC 25, stated “Furthermore the It is well understood that the adju- duty of this court to insure that availability of adjudication as of right dicator’s decision takes effect as an any final judgment “shall grant the has meant that many disputes are implied term of the contract. But relief to which the party in whose speedily settled between the parties what happens if a party refuses to favor it is rendered is entitled.” without even the need to invoke the give effect to the decision: is that a adjudication process. This is in part breach of contract that needs to go because Parliament chose to con- back to the adjudicator; or does it fer the right to adjudicate “at any need to go to the final dispute resolu- time,” so that it can be and is used tion method arbitration or litigation; to resolve disputes, eg. about final or is there a swift method of enforce- accounts between the parties after ment such that a court converts the practical completion, rather than decision into a court judgement. merely at the interim stage: see Con- All the foregoing are option for nex South Eastern Ltd v. MJ Building the potential U.S. legislation. In the Services Group plc [2005] EWCA Civ United Kingdom there is a well-estab- 193; [2005] 1 WLR 3323, paras. 34-38 lished summary judgment enforce- per Dyson LJ, who concluded that ment procedure. There is no reason in section 108: “The phrase ‘at any to assume that the U.S. states cannot time’ means exactly what it says.” adopt similar procedures. There is There are however, compelling some (albeit in the context Reprinted with permission from the August 10, 2020 edition of the NEW YORK reasons to limit adjudication to of DRBs): In Massachusetts Highway LAW JOURNAL © 2020 ALM Media , LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 pre-practical completion. Should Dept. v. Perini Corp., 13 Mass. L. Rep. or [email protected]. # NYLJ-08112020-457676