Adjudication is a fast dispute procedure created by the Housing Grants, Construction and Regeneration Act 1996, commonly called the Construction Act. Any party to a construction contract has a right to refer a dispute to adjudication at any time. The adjudicator must ordinarily reach a decision within 28 days of referral, extendable by agreement. The decision is binding until the dispute is finally determined by litigation, arbitration or settlement, so it is often described as temporarily binding.
Consultants' appointments are usually construction contracts within the meaning of the Act, so architects, engineers and quantity surveyors can be both referring parties and responding parties. Where a contract does not comply with the Act, the Scheme for Construction Contracts supplies the missing terms.
Adjudication was designed for interim cash-flow disputes, but it is now used to pursue substantial professional negligence claims. The 28-day timetable compresses what would otherwise be a long negligence action into a few weeks. A professional facing a negligence adjudication has very little time to gather evidence, instruct experts and respond, and an adverse decision must generally be paid even while the firm intends to challenge it.
The main professional indemnity risk in adjudication is not a novel legal exposure but the speed. A firm that notifies late, or tries to handle an adjudication without telling insurers, can compromise its own defence and its cover. Notifying the circumstance early keeps the policy responsive.
Some adjudications are payment disputes rather than negligence claims, including so-called smash-and-grab adjudications where a party seeks the sum in a payment application because the correct payment or pay-less notice was not served in time. A quantity surveyor or contract administrator who mishandles the payment-notice regime can expose the employer to such a claim, and the resulting loss can then be pursued against the professional. Following S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448, an employer that has paid a smash-and-grab sum can bring a later true-value adjudication, but the cash-flow consequences in the meantime are real and can crystallise into a professional negligence claim.
Apex encourages construction professionals to treat an adjudication notice as an immediate notification matter and takes the adjudication exposure into account when discussing cover. The sector guides for architects, quantity surveyors and engineers give the background.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.