Adjudication – The Alternative in Alternative Dispute Resolution

Over the last years, we have seen a rising popularity of a dispute resolution mechanism that is generally referred to as adjudication.

Adjudication is a process where a third person, the adjudicator, renders a decision on a contractual dispute which is, at least preliminarily, binding for the parties. Depending on the exact agreement, the parties may then apply to an arbitral tribunal or court for a final determination, often within a certain period of time. Adjudication is built on the idea to solve disputes arising out of ongoing projects as swiftly as possible in order to reduce the burden on the underlying transaction to a minimum.

It is particularly popular in the engineering and construction industry, where smaller disputes on ongoing matters repeatedly arise in the course of a project and where a rapid solution is required in order to avoid project impairments. In large-scale projects, this is sometimes achieved by already appointing an adjudicator (or a board of adjudicators) at the beginning of a project. The adjudicator is then called upon with short notice once a dispute arises. This enables the adjudicator to become familiar with the project right from the start and prevents the time- and cost-consuming procedure of selecting and appointing new adjudicators for every dispute.

The use of adjudication as an effective means of resolving construction disputes originated in England and Wales. Adjudication clauses first appeared in private contracts, based exclusively on an agreement of the parties involved. Later, the Housing Grants Construction and Regeneration Act 1996 for the first time introduced a statutory requirement to include adjudication provisions in every construction contract (“statutory adjudication”). The act provides that parties to a construction contract have to incorporate a dispute resolution clause referring any disputes to an adjudication procedure that has to fulfill certain minimum requirements and must fulfill strict time limits. If the parties fail to incorporate such a clause, a standard adjudication procedure is statutorily provided.

More recently, the increasing importance of adjudication as an alternative method of dispute resolution has been seen in Germany. There have been various initiatives to promote a more widespread use of adjudication, either on a recommendation basis or under statutory law. By way of example, the ADR working group of the ‘Deutsche Baugerichtstag e.V.’, a German association for the development and promotion of construction law and one of the broadest domestic forums for discussions in the field of legal construction issues, has drafted recommendations for the statutory implementation of adjudication that are similar to the English system. They recommend an automatic application of a defined adjudication procedure which is limited to a duration of 60 days and includes an opting-out option for the parties as well as means of preliminary enforcement. Similarly, the German Institution for Arbitration (DIS) recently issued a new set of rules for resolving construction disputes by adjudication and expert determination. The rules cover the appointment of the adjudicating body and the measures it can adopt, including the possibility to issue interim measures that make them binding and to impose severe consequences for non-compliance.

In Austria, the creation of a statutorily binding adjudication procedure for construction disputes is currently not on the horizon. However, in 2004, the Austrian legislator enacted the Civil Law Mediation Act (Zivilrechts-Mediations-Gesetz), providing a detailed legal framework for mediation in civil matters. Moreover, Austrian law provides instruments for the determination of contractual performance by a third person in a broader sense. These instruments are also suited to accommodate most forms of contractually agreed adjudication.