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Contractors, owners and lawyers are starting to remember (or learning for the first time) that adjudication offers the construction industry a low-cost, efficient tool for interim project dispute resolution. With forecasted budgets for 2023 looking tighter than at any time since 2008, adjudications should take on renewed importance as a cost-effective tool for contractors to recover sums owed and to settle disputes without spending a small fortune on litigation.
Costs aside, adjudications move fast. Winning at trial after a project sounds great, but how valuable is that “win” when it costs the company tens of thousands of dollars in legal fees and years of time to get there? Future money is good; money now is better.
Adjudications aim to get a determination and payment of the determination amounts within 56 days (46 days for the determination and 10 days for payment),1 allowing funds to flow to the company while the project is ongoing.
What can adjudication do?
Adjudication is a process created by the Construction Act and administered by Ontario Dispute Adjudication for Construction Contracts (ODACC), which assists with interim dispute resolution on construction projects. Parties to an adjudication ask a third-party adjudicator, backed by the certification and authority of ODACC, to weigh in on project issues and to make a determination that is binding for at least the duration of the project.2 Adjudication can best be thought of as a one-step escalation from negotiations, but still one step down from commencing arbitration or litigation.
Adjudications can be structured to deal with almost any financial dispute on a project.3 These processes are designed to be quick and efficient, and therefore, are usually not the correct forum for more complex disputes involving loss of productivity claims or instances of concurrent delay, for example. However, what adjudication can do is give the parties an interim binding determination on financial issues such as:
- Valuation of services or materials provided under a contract;
- Payment (or non-payment) under a contract which includes change orders and proposed change orders;
- Notices of non-payment under prompt payment;
- Claims for set-off;
- Non-payment of holdback; or
- Any other disputes the parties agree to adjudicate.
How do adjudications work?
The goal of an adjudication is to give the parties a binding determination within 46 days, subject to any agreed-upon extensions,4 which, in the dispute resolution/litigation world, is a sprint. An adjudication can only be commenced during the life of a project. It is an interim dispute resolution tool that is typically limited to one issue per adjudication. It is important to remember that the choice between adjudication and litigation, or lien remedies, is not a mutually exclusive one.
A successful (or unsuccessful) adjudication during the life of a project does not eliminate a contractor’s ability to resort to other dispute resolution tools after the project is completed;5 it just provides an additional tool for contractors to use during the life of the project, where previously disputes about payment were often sidelined until after the work was completed.
Once the decision to adjudicate has been made, ODACC provides participants with four pre-designed processes to respond to relatively simple disputes, as well as a customizable option to allow the parties and the adjudicator to get creative about how to deal with a specific adjudication.6 For example, some adjudications can be dealt with in as little as two pages of written materials, along with a copy of the contract and any disputed invoices.
As issues become more complicated, the adjudication framework is flexible enough to allow for additions like oral submissions, reply arguments and secondary disputes about the jurisdiction of the adjudicator to deal with the raised issues. This flexibility allows the parties to adjudicate almost every financial issue on a construction project at a cost-efficient rate.
Contractors also have the right to propose which adjudicator they want to hear a specific issue. Adjudicators come from a wide range of backgrounds, including project managers, quantity surveyors, engineers and lawyers, which can allow contractors the ability to nominate someone with a superior grasp of the practical issues involved.
Once an adjudicator is agreed upon, the party bringing the adjudication will submit its materials and arguments within five days, which will be followed by the respondent’s materials.
The adjudicator is required to make their decision based on the materials, law and argument submitted, so it is critical that these submissions set out the parties’ positions as clearly and concisely as possible. The adjudicator will issue a determination in writing within 30 days, which will then be certified and can be enforced like a court order to collect on any payments found owing.
Be prepared to move fast
Adjudications move fast. Contractors who fail to prepare for an adjudication until it is time to issue one have already fallen behind. Success at adjudication is largely connected to the strength of records kept by contractors, and the ability to access and explain those records in a clear and timely manner.
Contractors should prepare for the possibility of adjudication from the outset of a project. This means setting up internal databases for keeping track of invoices, payment dates, meeting minutes, project correspondence and other documents which are well organized and easily accessible. This also means preparing for the possibility that key project staff will need to devote time and effort to preparing for adjudications at times where they were originally expected to be on site.
Contractors who typically work with lawyers to resolve issues should bring their lawyers into the loop as early as possible when adjudication is anticipated.
It is important to remember that the choice between adjudication and litigation, or lien remedies, is not a mutually exclusive one.
Don’t wait: adjudicate
Adjudications provide contractors with an easily accessible interim dispute resolution tool that can improve cash flow and assist with resolving disputes in a timely manner. Despite its slow uptake in the construction industry, contractors will want to take advantage of the potential efficiencies and cost savings available through adjudication.
References
- Construction Act, R.S.O. 1990 c. C.30, s.13.9, 13.11, 13.13 and 13.19 (“Construction Act”), subject also to the adjudicator’s ability to request an extension of up to 14 days.
- Construction Act, s.13.15(1).
- Construction Act, s13.5.
- Construction Act, s.13.13.
- Construction Act, s.13.15(2).
- https://odacc.ca/en/claimants/adjudication-process-2/.
- Construction Act, s.13.11. Note that all adjudication timelines are in calendar days, not working days.
Faren Bogach is the founder of Construct Legal. Bogach has litigated all types of construction cases and has learned how things are built, and how things should not be built. Before founding Construct Legal, Bogach was a partner at a large Bay Street firm in one of the biggest construction law groups in Toronto.
Bogach founded Construct Legal to focus on client outcomes instead of the billable hour. Her legal advice is tailored to client needs and desired outcomes. She is focused on helping her clients keep up with the modernization of the construction industry.
James De Melo is an associate with Construct Legal. He started his legal career working with a Bay Street firm in one of the biggest (and busiest) construction law groups in Toronto. De Melo has worked on all manner of construction matters, including liens, breach of contract, negligence and delay claims, in addition to providing contract advice.
More recently, De Melo has developed significant experience with Ontario’s adjudication process representing both owners and contractors. 