November 2009

Construction adjudication remains the most popular way of resolving construction disputes - but what if an adjudicator makes a mistake?

IF AN ADJUDICATOR MAKES A MISTAKE IN HIS AWARD, CAN IT BE PUT RIGHT?

In adjudication proceedings there is a rule known as the “slip rule” whereby it is implied into the contract that in certain circumstances, an adjudicator’s decision can be altered. This gives the adjudicator some flexibility to put right a mistake that becomes apparent after the issue of a decision.

The slip rule is designed to operate within a short period of time from the date that the adjudicator’s decision is given.

An example of a recent case where the slip rule has been considered is that of YCMS Ltd (T/A Young Construction Management Services) v (1) Stephen Grabiner (2) Miriam Grabiner (2009). In this case, it was stated that it would only be in exceptional and rare cases that a revision could be made more than a few days after the decision. This comes back to the main statutory purpose of adjudication which is to aid cash flow by allowing disputes to be resolved quickly; were the slip rule to extend to weeks after the decision, then it would slow down the process and interfere with the speedy enforcement of decisions.

WHAT KIND OF MISTAKES CAN BE PUT RIGHT?

In the YCMS case it was highlighted that the slip rule could not be used to enable an adjudicator who had second thoughts to correct his award. The slip rule is intended to correct mistakes that could be corrected relatively simply and speedily such as arithmetical mistakes or the transposition of incorrect names i.e. “patent errors”. It is unlikely that an adjudicator would be permitted to change his decision on, for example, a major point of fact or of law.

In this regard, the slip rule exists to correct the decision itself, not the basis for making a decision. Even if the adjudicator later has second thoughts and decides that the basis of the decision is wrong, it is unlikely that the decision could be altered under the slip rule.

In these uncertain times, with the financial markets in turmoil, ensuring cash flow is vital to all businesses, large and small. We are told it could take years for the situation to improve, so having some basic procedures in place now to make sure your business weathers the storm is critical.

Here are ten general tips and guidelines to consider in order to help your business maintain cash flow and, hopefully, survive the “credit crunch”:

1. Know your client

Make sure you have stringent credit checking procedures in place. If your client is a company there are four simple steps you can take:

1. Ask the client for evidence of company accounts or other evidence of financial status

2. Check if their accounts are filed up to date with Companies House

3. Use a credit reference agency

4. Make enquiries of other contractors working for the same employer as to their creditworthiness.

2. Ensure you have security for payment

This is achievable in several ways. You can request advanced payment. You can set up an “escrow” account, i.e. a third party account which releases funds on independent certification. Another option is to put in place a Payment Bond and this can be on an “on demand” basis or an “on default” basis (i.e. where liability has to be established before the bond can be called on.) Obtaining Parent Company Guarantees and/or Personal Guarantees from directors are other useful forms of protection when dealing with companies. It may also be possible to obtain security over the client’s assets.

3. Enter into a written form of contract

It is strongly recommended that you enter into a written form of contract before you commence works and, of course, make sure you understand the contract terms before you sign! A tip for Consultants in this regard is to make sure you enter into a formal appointment agreement (or at the very least secure agreement to the employer’s standard terms and conditions).

4. Ensure you can charge interest on late debts

Make sure you include a term in the contract allowing you to charge interest on late payments. Alternatively, you may be able to rely on the Late Payments of Commercial Debts (Interest) Act 1998 and claim up to eight percent above Bank of England base rate.

5. Put in place regular interim payment terms

6. Avoid (if possible) payments linked to completion of specifi ed stages of work

Monthly valuations based on the value of works completed are better for cash flow.

7. Read and understand the payment terms

Ensure that the final date for payment is stated as a number of days after your application (in default of a payment certificate) not as a date after the certificate of payment.

8. Ensure that you incorporate a retention of title clause
The clause provides that title to goods and materials does not pass to the client until paid for but need to be carefully drafted. A retention of title clause can work provided goods and materials have been kept separate and have not been incorporated into the works. The clause needs to include a right to enter upon land (and possibly adjoining land) to recover goods and materials.

9. Put in place an efficient mechanism for chasing debts

It is advisable to carry this out on a monthly basis and this can be done in the form of initial chasing letters and statements, followed up by telephone calls.

10. Get professional advice early on!
Pounds spent at the beginning could save thousands of pounds if something goes wrong later so obtain professional advice early on, preferably before works start.

The FMB has teamed up with leading Credit Reference Agency, Experian Ltd. to offer its members a Free Credit Check and Public Record Search Service. Members can also get help with debt recovery and can download Free FMB Plain English Contracts.