Don’t Confuse Adjudication with Adjudicators 1

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Wednesday, September 17th, 2014
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When the Security of Payment Act started in New South Wales 14 years ago its stated purpose was made clear in the then Minister for Public Works Morris Iemma’s second reading: “It is all too frequently the case that small subcontractors, such as bricklayers, carpenters, electricians and plumbers, do not get paid for their work.

Many of them cannot survive financially when that occurs, with severe consequences to themselves and their families…The [New South Wales] Government is determined to rid the construction industry of such totally unacceptable practices.”

As adjudication determinations began to be made under the Act, it became clear pretty quickly that claimants were overwhelmingly successful in their adjudications. This led to some industry articles asserting some causes of this perceived imbalance. The most common assertion was that the outcomes in adjudication were due to poorly trained and ill-informed adjudicators or else the ‘self-interest’ of the nominating authorities who collected the fee for the adjudicators. Of course what was not being addressed here were the merits of the cases themselves!

Respondents failed to realise the actual reason their defences were often unsuccessful: a combination of very poorly prepared submissions and reality.

I am not an adjudicator, but thought it may be good to dispel this notion that adjudication determinations are either rigged, inherently unfair, or the result of poor adjudicators.

So I am going out on a limb here to differentiate adjudicators from adjudication.

1. The Act is simply doing the job it was drafted to do

The Act was put in place so that contractors who were not paid for often spurious reasons, or for no reason at all, could be paid for their work. In adjudication, both parties can make written submissions supporting their case.

Given the reality that often there was no real reason for non-payment, respondents often struggled to make their case, let alone come up with sufficient evidence. Claimants were often successful. That outcome was most often due not to a deficiency on the part of the adjudicator but simply because there was no real supportable case for non-payment. To complain that claimants are mostly successful is like complaining that the majority of people in a hospital are sick or injured. Of course they are; that is the very purpose of a hospital.

So it is with the Act. In a majority of cases, claimants are not paid for reasons put to them long after the work was completed and with no supporting evidence. All too often, respondents argue for massive set-offs [back charges] with no evidence to support their arguments and on a “because I say it is” basis. Not only does such an approach fail in adjudication, it would certainly fail in court. That outcome flows from the adjudicator simply doing his/her job.

2. No evidence means no win – no matter where you are

Perhaps the largest contribution the adjudication process has made to payment disputes is accountability.

If a respondent is withholding payment, it has to explain why. It also has to explain the valuation and provide evidence for its position. Before adjudication, none of this was necessary and a party could withhold payment on a whim with no explanation at all. Some of this culture is still around. I recently had a submission where the respondent argued for a $500,000 back charge based on a two-sentence description. Of course that was rejected due to lack of substantiation. The best reason I ever got for a $20,000 non-payment was for “defects yet to be identified in a future report.” Is it really so surprising that that argument did not succeed in adjudication? Would such a reason succeed in court?

An adjudicator is left with little option but to reject those submissions that are not adequately supported by evidence, or at the very least those that appear unlikely “on the balance of probabilities.” Once again, this is nothing to do with adjudicators, but everything to do with adjudication. Claimants bear a similar burden. In highly contested issues, a claimant cannot succeed without sufficient evidence, even in an undefended claim where the adjudicator must be satisfied the work was carried out and correctly valued.

3. The adjudicator’s fundamental role is to ‘value’ the progress payment

There is a great deal of confusion on this point. The Act mostly requires an adjudicator to apply the agreed contract prices/rates to the work carried out in order to come to a value of the progress payment. The adjudicator is not there to consider lengthy legal arguments.

Again, this is simply the Act doing its job. The parties must engage each other on the work carried out and centre their submissions on just that. This is what the adjudicator is to consider. As an example, I once prepared a submission for a builder who was seeking payment for the construction of a large veranda and roof of a commercial property. The payment schedule was prepared by solicitors. It was a 15-page case law review of the Act centred on why the claim was not validly served [It was!] In all its pages, the work was not even mentioned once!

Being satisfied that the claim was served, the adjudicator was not confronted with any reasons for non-payment because the respondent had not addressed the actual work. That is the role and function of an adjudicator under the Act. Provided the adjudicator is satisfied that construction work has been carried out, the Act provides a statutory entitlement to payment for that work. If a respondent argues for no payment or less payment, there is no option but to address the work directly. These outcomes are nothing to do with adjudicators, but are in fact the expected outcomes of adjudication: a valuation that derives from both parties’ submissions on the work carried out.

There is no question that adjudicators occasionally make mistakes, but that does not of itself invalidate the adjudication process. Judges make mistakes too, which is why there are courts of appeal. Without adjudication, many payment disputes would not have an economically viable avenue for closure. There is no merit in complaining about an adjudicator doing his/her job under an Act that was also designed to a job: ensuring that meritorious claims can get paid.

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  1. I guess this just goes to show that if you are going to withhold payment, you had better get a good reason first and have thorough backup to substantiate your actions in this regard.

    Were the 'defects yet to be identified in a future report' ever actually identified?