Adjudication under the Act is a fast track process designed to provide an interim determination of a dispute between the parties.

Any party to a construction contract has the right to refer a dispute to adjudication. The exception to this is where the parties have agreed to refer disputes to arbitration, and the arbitration is an international arbitration. In a situation where a matter has been referred to arbitration, a matter can still be referred to adjudication with consent of the parties.

An important factor to note is that not only matters regarding payment in a construction contract, can be referred to adjudication. Disputes concerning the rights and obligations of the parties can be referred to this process.

There are a number of steps in the adjudication process.

a) service of notice of adjudication;

b) selection of adjudicator;

c) appointment of adjudicator;

d) referral of dispute to adjudicator;

e) response to adjudication claim.

The first step in the adjudication process is the notice of adjudication which needs to be served on the respondent or the person against whom a claim is being made. Certain information is required such as date of notice, nature and brief description of dispute, details of where and when dispute arose, relief or remedy sought. The Act requires that better explanation be provided to a residential owner under a residential construction contract of the adjudication process.

The second step is the selection of an adjudicator. An adjudicator needs to be selected as soon as is practicable. An approach to the person agreed on as adjudicator is made by the claimant.

The third step is the appointment of the Adjudicator. A person requested to act as adjudicator must indicate his/her willingness to act within 2 working days of receiving request. If a positive answer is given then the Adjudicator must serve a notice of acceptance on the parties.

The fourth step is for the claimant to serve on the Adjudicator the dispute in writing within 5 working days of the notice of acceptance. It is called the adjudication claim. The adjudication claim needs to be consistent with the notice of adjudication, as there could be resistance at a later point in time if the adjudication claim is more broadly drafted than the notice of adjudication.

The adjudication claim needs to cover the nature and grounds of the dispute and be accompanied by the notice of adjudication, and any other documents. It needs to be served upon the respondent as well.

The fifth step is for the response to the adjudication claim to be served on the Adjudicator and the claimant by the respondent. It needs to be done within 5 working days. If it is not served within 5 working days, then the Adjudicator can choose not to have regard to it. If the respondent fails to reply at all, then the Adjudicator can draw what inference he/her wishes from that, and determine the dispute on the basis of the information available to him/her.

The Adjudicator’s decision on a dispute needs to be made within 20 days of the date that the respondent’s response is required to an adjudication claim, or alternatively within 30 days if the Adjudicator decides that further time is required to decide this dispute. The time limit can be further extended with the consent of the parties.

The Act provides an adjudicator with the power to determine that the costs and expenses must be met by any of the parties to the adjudication. The factors that the adjudicator needs to take into account, are whether the party has caused these costs to the other side through bad faith, and/or whether one of the party has made allegations that are without substantial merit.

An important distinction needs to be pointed out as to the enforceability of an adjudicator’s determination. Where the Adjudicator makes a determination in respect of a payment of money, then such a determination is enforceable against the offending party. However where an adjudicator makes a determination as to the rights and obligations of parties to a construction contract, then this is not enforceable. But any Court which is asked by a party to consider the enforceability of a party’s alleged rights under a contract, must have regard to the adjudicator’s determination.

So the process provides a relatively fast and efficient manner for contractual disputes to be resolved. However, it is still a legal process, and parties may find themselves disadvantaged in situations where they are unrepresented, but the other party to a dispute has legal representation.

The purpose behind the act is described as:

(a) to facilitate regular and timely payments between the parties to a construction contract; and

(b) to provide for the speedy resolution of disputes arising under a construction contract; and

(c) to provide remedies for the recovery of payments under a construction contract.

The Act will apply to all construction contracts that relate to construction work carried out in New Zealand, and that are entered into on or after the date of commencement of this Act. It will also apply to construction contracts that were entered into before 1 April 2003, but were renewed for a further term on or after that date.

The Act will apply to oral or written contracts as well as partly written or partly oral. It is not possible for a party to contract out of the Act.

Payments Scheme.

Sections 13 to 24 set out the manner in which payments are to be made under the Act. Contractors and subcontractors will be in a position of strength in terms of receiving payment so long as they properly document their progress claims and payment schedules. So long as a claim is properly submitted, it becomes very difficult for a principal to refuse to make payment. In fact, if a principal receives a claim, for which it does not agree with, but fails to respond in time, then the principal will be bound to pay the full amount claimed under the Act.

It should also be noted that the clauses commonly described as “pay if paid” are deemed to be unenforceable by the Act.

The Act leaves it open for the parties to agree progress payment terms, however in the absence of these been expressly agreed, Section 17 and 18 impose monthly progress claims on a contract with payment to be made 20 days following a progress claim being submitted.

The Act sets out exactly the type of information that a progress claim should contain. In response the payer can provide to the claimant a payment schedule as to the payments it intends to make. Again the Act sets out the type of information that this should contain.

a) The Act provides a claimant with the remedy of suspension in a situation where payment is due, and the payer has not responded to the progress claim by way of payment schedule.

b) Similarly the same remedy remains open to the claimant, where the payer has submitted a payment schedule, but failed to pay the amount specified in the payment schedule on the due date.

Clearly the remedy of collection of the due amount, together with the collection costs involved is also available to the claimant, in both the situations detailed as a) and b) above.

Adjudication Process.

The Act also provides for a fast track adjudication process for disputes arising out of these construction contracts. Of course the Act still preserves the right of parties to agree to some other type of dispute resolution. However the fact that disputes that fall under the Act have to be resolved within 30 days, makes it a reasonably appealing Dispute Resolution mechanism for members of the industry.

The adjudication process is commenced by one party to the construction contract serving a fully detailed notice on the other party to the contract, and potentially the Owner, as to the fact that an issue is in dispute. The Act specifically sets out at Section 28 the procedure involved and the information required.

Remedies.

The Act provides a number of new and effective remedies that can be granted by an adjudicator in a situation where payment is not being made. Firstly suspension of work is justified in the two situations already mentioned, together with a situation where an Adjudicator’s award that payment be made, is not complied with. It is also made simple to have an award registered as a judgment and then enforced in the Courts. In some instances a charging order can be registered over land.

Although there is already a lot of opinion to the effect that this Act has not gone far enough in terms of protecting contractors, it is clear that will improve the situation for contractors being paid in a timely fashion, so long as they document their claims properly and diligently, in accordance with the Act.