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Building blocks
Law Society Gazette – 22 October 2003

The construction industry is buoyant. Yet despite the plethora of projects, fewer cases are going to court. Mark Smulian explains why more and more firms are trying out adjudication

'We're having the builders in.' These are words to strike fear into the stoutest of hearts even if its only for a loft conversion. When one gets to the size of construction projects handled by the major City law firms, the opportunities for legal disputes to arise are extensive.

And there are many large schemes and contracts to be drafted and managed, for these are boom times for the construction industry and the lawyers who serve it. The Bank of England recently identified the industry as one of the factors behind better than anticipated economic growth figures. Moreover, the Chartered Institute of Purchasing and Supply's September survey found the industry enjoying its highest growth for more than two years and its 56th consecutive month of growth.

Yet despite the quantity of projects, solicitors who do disputes work are taking fewer cases to court than ever. The reason is that both this and the previous government were exasperated by the predilection of players in the construction industry for settling disputes through litigation.

Whitehall mounted an attack on the industry's 'see you in court' culture, with the creation of adjudication as a relatively fast and cheap means of dispute resolution. Either party can insist that a dispute is referred to an adjudicator. Rulings cannot be appealed, though a losing party could re-run the whole case in a court, which happens rarely.

Adjudicators can be lawyers, but each construction professional institution also maintains a list of its recognised adjudicators.

Simon Tolson, a partner at London firm Fenwick Elliott, says the spread of adjudication is such that 'I don't even call myself a litigator any more, as we are very rarely in court. There has been a massive change in disputes. All the bellicosity of the construction industry is still there, but there is a far more effective way to resolve it'.

The number of cases may even have increased as the speed and cheapness of adjudication can make it attractive, he says. 'In terms of the size of disputes it is used up to multi-million pound cases. I have done about 100 since 1998 and have three or four going at any one time,' says Mr Tolson. 'Some practices did not understand adjudication and thought it was a fly-by-night thing that would go away; now they are doing it but they missed out on the early years of the work.'

Marc Hanson, a partner at City firm CMS Cameron McKenna, agrees. 'We are extremely busy at the moment. If you put in place a system that is cheaper and easier to use than before people will be more inclined to use it,' he says.

'What we are seeing as a practice is that, unlike what most people expected, there are high-value disputes about defective work going to adjudication, and even professional negligence cases against consultants are going there.'

He maintains that adjudication reform has done what it set out to do. 'If you think it developed to stop disputes going to court it has succeeded,' says Mr Hanson. 'My clients regard it as a useful way to sort things out. In the past, it might have taken four or five years for a case to get through court - now it can be a couple of months, and the cost savings are enormous.'

'There was an idea that adjudication would be used to nip disputes in the bud during a project. That has not happened, and they still mostly come at final accounts,' he adds.

One issue is the unpredictable quality of the adjudicators. Mr Hanson says: 'It works surprisingly well, but the quality of adjudication is a bit of a lottery as there can be some very good ones and some not so good.'

Another construction lawyer, who did not wish to be named, puts it more bluntly: 'Some are truly excellent, but some are barking mad and think they are exercising the judgement of Solomon.'

Sally Roe, a partner in the construction and engineering group at City firm Freshfields Bruckhaus Deringer, does adjudication only in the course of other cases. 'We do adjudication work, but it is exceptional as we tend to work on very large projects and there it is relatively rare,' she says. We see greater use of alternative dispute resolution. We would not target adjudications as stand-alone work.'

On very large projects there are often long-term relations in place between the developers, contractors and suppliers, and even where these stop short of formal partnering arrangements 'it is not necessarily in one's interest to go to adjudication with someone whom you hope to be working with over many years', says Ms Roe.

The market for non-contentious work remains strong, with most public contracts going through the private finance initiative (PFI) route, and large private sector deals using long-term management contracts, she says.

PFI contracts are becoming somewhat more standardised after ten years, with less need to re-invent the wheel on each. Even so, 'there is a lot to do on a large PFI contract besides plain contract drafting, even if there is less sitting with a blank sheet of paper', she says.

Tim Steadman, a partner at global law firm Clifford Chance, does not do adjudication work, but says the non-contentious area 'has held up reasonably well in the last year. With real estate, PFI and international work in arranging finance for process industry plants, it has kept us extremely busy'.

Although PFI deals are becoming more standardised, he points out 'that definitely does not mean they are all one and the same'.

Mr Steadman says: 'The work still needs practical and creative lawyers who are experienced in closing deals. It can be cheaper to hire a lawyer who can do that than one who is cheaper by the hour but takes longer.'

Mr Hanson has detected that the non-contentious side has suffered 'quite a slowdown in commercial private sector activity, but a lot of construction firms - and therefore construction lawyers - have switched to the public sector where there is a vast amount of work, in particular PFI work'.

At Fenwick Elliott, non-contentious work is 30-40% of what the construction arm does, Mr Tolson says.

He, too, has found that commercial work has declined in the past 18 months, with the fitting-out market in particular having gone quiet as London suffers a glut of empty office space.

'Non-contentious PFI and public/ private partnership work is bigger than ever and I don't think that will change. The indicators suggest it is up on last year,' he says.

While the work is still rated 'very profitable' he admits that competition has brought charge-out rates down: 'The days when blue-chip firms could charge 500 an hour have gone.'

As a boom area, construction is attractive to some new solicitors, but not enough of them. Mr Hanson says: 'There are very real recruitment difficulties on the non-contentious side. Not many firms do it well and there are not enough people doing it. We tend to train our own.'

But he has encouraging words for solicitors thinking of specialising: 'If people decide to specialise in non-contentious construction law and do it well in a good firm, it is almost a job for life. There is always demand and firms are trying to boost it.'

Clifford Chance often looks to Australia and New Zealand to find the right people in this field, says Mr Steadman.

Mr Tolson thinks adjudication 'needs to be done at the partner or senior lawyer level, because it needs someone who is pro-active to crack on with a dispute and liaise at a high level with the client,' he says. 'You do not get that in many newly-qualified lawyers'.

Ms Roe also backs the home-grown route. 'We never have difficulty in finding places for people trained in the firm so we tend to grow our own,' she says. 'But at about two years' qualified it is very difficult to get people from outside.'

Mark Smulian is a freelance journalist