The future of adjudication rests on the shoulders of adjudicators

Michael Chesterman February 3, 2020
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In 1999, I commenced undertaking Security of Payment (SOP) research for the then building industry regulator in Queensland, the Building Services Authority.  During the subsequent 20 years, I oversaw the development of an adjudication regime (2000-2004) and then was the inaugural Adjudication Registrar under BCIPA (2004-2017).

From 2017 until the present time, I have worked with Helix Legal where I have sought, with the assistance of our legal team, to stay across adjudication related issues.

I am a passionate advocate for adjudication.  I believe it is by far the quickest, cheapest and most efficient system for resolving progress payment disputes.

However, there has been plenty of adjudication changes over this 20 year period.

For starters, I have witnessed the emergence of two distinct adjudication models throughout Australia, namely a ‘West Coast Model’ and an ‘East Coast Model’.  In his report entitled Review of Security of Payment Laws, John Murray AM stated:

the approach adopted by the NSW legislature and all of the other jurisdictions that modelled their legislation on the NSW Act (i.e. Queensland, Victoria, South Australia, Tasmania and the ACT, which has come to be referred to as the ‘East Coast Model’) was to provide a separate statutory right to payment with a rapid adjudication process to deal with payment disputes. On the other hand, the approach adopted by Western Australian and the Northern Territory legislature (which has come to be referred to as the ‘West Coast Model’) was to provide a rapid adjudication process that would enable either party to enforce their contractual rights, of which the enforcement of a party’s contractual entitlement to payment could be but one of such disputes. In other words, the NSW-based legislation envisaged the adjudication process as a means to an end, with the end being the enforcement of the statutory entitlement of a progress payment. In contrast, the legislation based on the Western Australian legislation envisaged the adjudication process more as a mechanism that would enable all disputes arising under a construction contract to be dealt with quickly.”

In terms of the East Coast Model, QLD and NSW have emerged as the most significant states where this form of statutory adjudication is widely utilised.  However, over time the two states have embraced very different progress payment and adjudication processes, resulting in significant differences now being evident between the two states.

Below are two infographics that highlight the differences between the two states in this regard.

  

We need to change the conversation to the performance of adjudicators

I am of the view that regardless as to whether:

  • a claimant needs to endorse a payment claim;
  • a respondent has one or two opportunities to respond to a payment claim with a payment schedule;
  • a respondent has 10 or 15 business days to provide a payment schedule; or
  • East Coast or West Coast model is applicable,

these issues will not determine if adjudication is still around in 20 years as a key dispute resolution model.

In my view for adjudication to survive and flourish, it will require adjudicators to commit to continuously improving their skills and expertise in deciding payment disputes.

Every decision-making regime requires a person or persons prepared to accept responsibility for deciding key moments, issues or matters.  No decision-making regime with humans as the decision makers will ever get things right 100% of the time.  Adjudication is no exception in this regard.

NRL Rugby League referees provide a valid point of comparison to adjudicators because they operate in a high-pressure environment and where there is as great deal of public scrutiny on their performance.  NRL referees are aware that any mistake they make can determine the outcome of a very important game such as what happened in the  2019 NRL Grand Final.

Adjudicators are aware that any mistake they make in determining a payment dispute may have serious financial ramifications for the parties.  As is the case with referees, I am sure all adjudicators want to eliminate mistakes as much as is humanly possible.

NRL referees are well paid.  In an article entitled Top-flight referees set to earn more than 300k per year it is stated:

“NRL.com understands that figure is around a 30 per cent pay rise by 2022, with the likes of leading whistle-blowers Gerard Sutton and Ashley Klein pocketing over $300,000 – a healthy increase from the previous high water mark of around $180,000.”

However, it should be recognised that NRL Referees are subjected to an exhaustive weekly evaluation of their performance  and I have not heard one of them complain about this process. They accept the need for this evaluation process because they see it is an opportunity to learn and improve their performance as elite referees.

I am not suggesting that adjudicators should be required to submit to such a regular appraisal of their performance.  However, I think it is important that there be a conversation on the need for adjudicators to continuously improve their performance.

I would like to point out that without exception, every adjudicator I have had occasion to meet and spend time with is a very committed person who take their responsibilities extremely seriously.  I view this level of commitment by adjudicators to be one of the main strengths of the adjudication regime in Queensland.

How many adjudicators are there?

According to the 2018/2019 QBCC Annual Report, as at 30 June 2019 there were 140 registered adjudicators in QLD.  This does not mean all 140 registered adjudicators made themselves available to decide adjudication applications during this financial year.

How are adjudication applications referred to adjudicators?

The Adjudication Registrar has made an Adjudicator Referral Policy pursuant to section 155 of the BIFA which sets the matters they will have regard to when referring adjudication applications to adjudicators.

How many adjudication decisions were handed down in 2018/2019?

According to the 2018/2019 QBCC Annual Report, there was 300 adjudication decisions handed down during this Financial Year.

Are adjudication decisions published?

Yes.

The QBCC publishes every adjudication in full where persons can search  on a specific claimant or respondent basis.  Furthermore, the most recent decisions appear on the front page of this public record.  Since 2004 I have had occasion to read hundreds of adjudication decisions, initially in my capacity as Adjudication Registrar (2004-2017) and in recent years as a result of my involvement with Helix Legal because of our specialisation in adjudication work.

How are adjudicators remunerated?

In the 2018/2019 QBCC Annual Report, it is stated:

“Under the BIF Act, maximum fees and expenses are now prescribed for progress payments of not more than $25,000. For progress payments over $25,000, fees and expenses are to be agreed between the adjudicator and the parties. In the absence of agreement, an adjudicator is entitled to an amount that is reasonable having regard to the work done and expenses incurred.”

In the same report there is very detailed information concerning adjudicators fees.  For example, in respect of adjudication decisions handed down where the amounted claimed was up to $10,000 (43 decisions), the average fee charged by adjudicators was $719.30.  However, for adjudication decisions handed down where the amount claimed was greater than $1,065,600 (5 decisions), the average adjudicator’s fee was $55,980.83.

I should also point out that unlike the situation in NSW where adjudicators typically have to pay a service fee of up to one-third of their fee to non-government bodies (Authorised Nominating Authorities) that appoint them, no such service fee has to be paid to the Adjudication Registry.

It also needs to be recognised that under section 95 (7) (d) of the Building Industry Fairness (Security of Payment) Act 2017, (BIFA) adjudicators are not required to release a copy of their decision until their fees and expenses are paid.  

Are adjudicators protected in doing their job?

Yes.

Under section 186 of BIFA an adjudicator in the performance of their functions is not personally liable for anything done or omitted to be done in good faith.  This amounts to a statutory indemnity for adjudicators in the performance of their job.

Does BIFA contain any adjudicator performance initiatives?

Yes.

BIFA implemented significant changes that I believe will assist adjudicators in the performance of their functions.  Information contained on the QBCC website states that:

“Registration as an adjudicator is subject to the following conditions.

  • The adjudicator must comply with chapters 3 & 5 of the BIF Act.
  • The adjudicator must complete continuing professional development as prescribed by the BIF Regulation and the Continuing Professional Development for Adjudicators Policy (PDF).
  • The adjudicator must comply with any reasonable conditions that the registrar considers appropriate to give effect to this chapter, if stated in the certificate of registration or in an information notice.
  • The adjudicator must comply with the Code of Conduct for Adjudicators (PDF).”

Furthermore, division 2, part 5 of the Building Industry Fairness (Security of Payment) and Other Legislation Amendment Regulation 2018 addresses the eligibility, initial grading and regrading of adjudicators. These are also very important initiatives that provide clarity in respect of key registration issues.

Should adjudicators be required to do more performance upskilling?

I believe adjudicators ought to be required to do more upskilling, but I have an open mind as to what should be involved.

I do note that the policy for the registration of practising arbitrators is very comprehensive.  It may be the case that there are some relevant upskilling initiatives or requirements applying to arbitrators that could also be applicable for adjudicators.

Final thoughts

My motive in writing this article is a desire to see the adjudication regime in QLD have adjudicators that are committed to continuously improving their performance.  If this happens then I am very confident that in the future, adjudication will be viewed by construction industry participants as the quickest, cheapest and most efficient process for resolving payment disputes in the construction industry.

We at Helix Legal are very much looking forward to hosting the first of our Building Better Business Series for the year on 4 March 2020, were the focus will be on adjudication.  I would encourage anybody interested in adjudication to come along.

Not intended as legal advice. Read full disclaimer.
Michael Chesterman February 3, 2020

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