Jacob Austin 00:00:00 Hi all, it's Jacob Austin here and welcome to episode 138 of the Subcontractors Blueprint, the show where subcontractors will learn how to ensure profitability, improve cash flow and grow their business. Today's episode is all about adjudication, focusing in on payment mechanics that work around it, where subcontractors get exposed and, critically, how to succeed, with particular focus on the records that you need to have if you ever want to use it. Now let's start with where we are in the industry right now. Insolvency rates in construction have been climbing steeply. Payment disputes are up. materials volatility, tight margins and supply chain pressure have stacked up across multiple contract tiers, and I think that pressure lands the hardest on subcontractors. You're the furthest from the client's money, and you're the closest to the end of the payment chain in that environment. Knowing how to protect your cash flow isn't an option. It's something you need to do to survive. And adjudication is the tool that law gives you to do that. The problem is that most subcontractors treat adjudication like it's a nuclear button, something you only reach for when everything else is failed, when you're six months into a dispute.
Jacob Austin 00:01:39 When relationships are broken down completely and the money has been gone so long, you've forgotten what it felt like to have it. It's that attitude that makes it feel as big as it is, and arguably it's the wrong way to think about it. Adjudication doesn't have to be a last resort. It's a commercial lever, and the subcontractors who understand it early, who build processes around achieving it and critically keep their records in a way that would survive a 28 day adjudication timetable. Those subcontractors are the ones that get paid. The rest are just there to argue about it. Under the Housing Grant's Construction and Regeneration Act, the Construction Act, as we all know it, specifically, section 108, you have a statutory right to refer a dispute to adjudication at any time. You don't need permission from the other side. You give a notice and adjudicator is appointed, and you're into a timetable that typically produces a binding decision within 28 days. That speed is the entire point of adjudication. It's there a designed system to preserve cash flow and keep projects moving.
Jacob Austin 00:02:53 The adjudicator themselves is usually a subject matter expert. A senior shows an engineer, a solicitor with construction experience, and their decision is binding unless and until it gets turned over by either arbitration, litigation or a binding agreement between the two parties. The important word there is, unless the decision isn't necessarily the death of the argument, if you think it's gone wrong. But what really matters is it gets enforced fast. The Technology and construction court has a default position of enforcing adjudication decisions that was established back in 1999, in the McCabe vs Morrison case, to confirm that adjudications and their decisions are binding and they must be complied with, which means you have to pay. Now if you want to carry on the argument, you do it later. That hierarchy is there to protect cash flow and it protects you as a subcontractor provided your process meets the grade. There are two routes through adjudication that you need to understand. The first is known as the smash and grab, and the second is the true value adjudication. They're not the same thing, and understanding the difference is worth real money.
Jacob Austin 00:04:14 A smash and grab adjudication is about enforcement of a notified sum, a payment that hasn't been made in time, a payment notice that hasn't been given in time. Whether you're working under JCT, NEC or just the construction scheme itself. There are strict deadlines for the payer to issue payment notices and then pay less notices. And if those deadlines are missed or the notices are invalid, then providing your application meets the requirements that must be paid in full. And if the contractor doesn't pay. Smash and grab adjudication is the process to get your hands on the money. The Court of Appeal confirmed previously in a case between S and T versus Grove, that if a player fails to serve a valid pay less notice, they must pay the notified sum first and later they can pursue a true value adjudication that underpins the rule of pay now, argue later. That means that you should get cash first before the real argument about how much the job is worth is revisited under a true value adjudication. Now, the little VS three CL case has redefined that boundary a little bit, because the court confirmed that other disputes can be ruled on in parallel, such as defects, claims, or extension of time issues, provided that they're not just a revaluation of the same notified sum by the back door and the court scrutinizes that.
Jacob Austin 00:05:42 So if the player tries to dress up a true value argument as a defects claim just to avoid paying first, then the court won't give it time. And what that means to you as a subcontractor is if you submit a compliant application and the main contractor fails to serve a valid pay less notice and time, then you've got serious leverage. So why wouldn't you use it? The most common failure for subcontractors using adjudication isn't the adjudication itself, but it's everything that happened before that, before it ever becomes necessary because subcontractors lose adjudications or sometimes avoid using the mechanism entirely because their underlying records aren't good enough. By the time you're in a 28 day adjudication, you do not have time to go back and rebuild a paper trail. That means if something isn't already documented at the time in a way that links directly back to the contract, you're presenting your case with one hand tied behind your back. The second issue is not tracking your notice window's Application dates followed by payment notice dates followed by pay less notice dates. These all have specific deadlines tied to the payment schedule in your contract.
Jacob Austin 00:06:59 Miss your application date under any C4, and you risk the assessed amount being capped at your previously applied amount. If you fail to spot the main contractor's pay, less notice was served late or was missing the required breakdown. You've missed an opportunity for an adjudication that was sat right in front of you. The third issue is mixing up the different types of dispute. Trying to package up a payment claim, a loss, an expense argument, a defect counterclaim, and an extension of time issue into a single confused referral that gives the contractor clear ability to challenge that process legitimately in court later. The best way forward is to keep the streams clean and to know which dispute you're referring and on what grounds? Let's just talk about a realistic scenario. You're a mechanical subcontractor on a large commercial fitout, and your application has been submitted on time. It states the sum and the basis of calculation. Clearly, the main contractor is under pressure and their own program and cash flow and month end passes without a valid payment. Notice the deadline is gone.
Jacob Austin 00:08:10 Your owed 180,000. They've paid 40,000 on account and just gone quiet. If your application is compliant, if it clearly states the sum and the basis of calculation, and you can prove it was served correctly and on time, you have the makings of a smash and grab referral. You go to adjudication. You claim the notified sum. You win. That means they have to pay. Then if they want to argue the true value was lower, they do that in a subsequent adjudication, but they have to hand over the cash first. That's a scenario that plays out regularly, but it only plays out if your application was right in the first place. If the sum wasn't clearly stated, if the basis of calculation were some vague summary and you can't prove when and how it was served, any one of those gaps and your leverage disappears. How will you protect yourself against. This is all about your discipline. You have to apply that discipline consistently on every job and every payment cycle, not just when you think a dispute might be brewing.
Jacob Austin 00:09:17 Always start with your application. Every payment application needs to state the sum you're claiming and the basis on which you're claiming it. It shouldn't be a reference to last month's figure adjusted upward for amounts in the period. It needs to be a clear, traceable breakdown. For NEC, that means a basis of calculation that mirrors the defined cost logic for your option for JCT. It means a Evaluation tied to the interim valuation rules for the subcontract. Your application also needs to serve as a default payment notice in a statutory sense. That means it needs to be fully calculated out, deducting any discounts, any retentions, and adding VAT right at the end so that you've got a clear amount that should be paid. If it's clear enough like that, you're starting from the right place, then track the cycle. Know your application date. Knowing the due date forms. Know the payment notice window and the Payless notice window. Put it all in a tracker, a spreadsheet, a calendar, whatever works for you. But know the dates.
Jacob Austin 00:10:24 If a painless notice isn't served on time, then flag it immediately. Don't wait and see. Don't wait for the window to close and your leverage to disappear. These are the records that you need for a successful smash and grab adjudication. This is quite straightforward and easy to collate as you go. When it comes to the true value of adjudication. The picture needs to be a lot bigger and a lot more all encompassing. Records need to be contemporaneous and traceable. That means your records exist at the time the events happen, not six months later when somebody is trying to reconstruct some kind of story. These are your site records, progress photos, delivery notes, variation instructions, all dated, all stored, all linked back to the relevant contract mechanism. For any C jobs, that means your compensation event files, early warnings, quotations, program records, the accepted program logic for JCT jobs. It means your instruction register, your confirmation of verbal instructions, your variation files with notes and variation buildups, and information on efforts.
Jacob Austin 00:11:37 If time is in dispute as well, let's just dig into that a little bit deeper. Let's get specific about what contemporaneous records actually look like in practice. You've probably heard a hundred times to keep good records. It's easy advice to give, but you need to know what that is, to be able to build good records and why. The word contemporaneous is used a lot in the dispute setting. It doesn't just mean recent, it means created at the time that the event occurred by somebody who's present with no knowledge of how things were going to unfold. It's just facts. That last part matters. An adjudicator or a court further down the line places a lot of weight on the records that were made before anyone knew that there was going to be a dispute. A site diary that was written the day the problem happens is far more credible than narrative that you've compiled six months later from cobbled together bits of stories relying on people's memory and email chains. The contemporaneous record is your witness, so you need to build it like one on a live job that starts with your site diary, not the main contractor's site diary.
Jacob Austin 00:12:50 It needs to be your site diary from your supervisor, your working foreman, your site manager, whoever's running that operation on the ground for you, they need to write it every day. It doesn't have to be paragraphs of commentary, short factual entries. Who's on site, what work is carried out, what's completed, what couldn't be carried out, and why? What visits have happened from the main contractors, team instructions or confirmations that are given verbally and crucially, access problems, delays, plant breakdowns, materials that didn't arrive, whether if it's relevant to your work, it can be a physical document written into a diary, or it can be a digital log, but it needs to be kept consistently. A site diary with gaps can be weaker than no site diary at all, because the gaps become the story coupled to the site diary, and the work really strongly together as a pair. Are your photographic records. Photographs are evidence, but only if they're taken correctly. A photograph without a date, a location reference and knowledge of what it's showing can almost be useless in a dispute.
Jacob Austin 00:14:03 But a time stamped photograph and most project apps will do this for you automatically now captures progress at regular intervals, not just at the end of activities, but throughout them. Things that get covered up are especially important, so we're thinking concrete pours. Drainage runs. Structural fixings, M-A fixings that are covered up by plasterboard once it's covered up. The only record of it is your photograph. So if there's a defect allegation later or a scope dispute. That photograph can be worth considerably more than any retrospective argument. It could avoid you opening up the work when your photographs support the site diary that you're presenting. You've got a superbly credible narrative, and credibility is how you win in a dispute. Alongside photographs, you need to build a drawing and instruction register every drawing you receive. You log it drawing number, revision date received, and who issued it. Every instruction written, verbal, emailed or otherwise log it. Verbal instructions are a significant exposure point for subcontractors. The best way to combat them is to confirm them back to your main contractor in writing.
Jacob Austin 00:15:21 That puts the onus back on them to confirm what you're saying is the truth, or to deny it, or anywhere in between. If the contractor doesn't respond to your confirmation after two weeks under a JCT contract. That confirmation of verbal instruction is as good as a written instruction. Just think about that. It's a simple email that you could write in minutes. If you don't do it, you're potentially costing yourself thousands of pounds of cost recovery from your contractor for the sake of two minutes of admin. You can even dictate the email on your phone, which is even quicker than typing. Why wouldn't you do that and protect yourself, protect your recovery, protect your cash flow and protect your business. Digital records count as well. Whether it's from a common data environment where all the drawings are stored, amendments to models and outputs, digital dashboards, you can use those as well. But for these you need to have context as well. You need to explain why it's relevant to your contract. A data export without the context doesn't help an adjudicator, but a clear bundle of information with a bit of written explanation that explains how to navigate it can really strengthen your case.
Jacob Austin 00:16:35 A final kind of record that's worth mentioning is the program. If you produce your own programs, then make sure that your critical path is straightforward to follow that when you make changes to it and say this impact happened because of this event, record them in a log so that you can trace cause to the effect. Show on them the dates when other people are supposed to do things like hand over an area to you, provide you with a drawing when those dates aren't met, it makes it easy to justify your extension of time request. If you don't produce a program, you can always take a copy of the contractor's program and annotate it yourself. This activity that should have started here started on this date. The contractor didn't issue a key piece of information on this date. Because of that, all of the following on events have now been delayed. When the contractor gives you revisions of the program and it shows changes to your critical path of work. Make yourself a little written explanation of what changed and what caused the change.
Jacob Austin 00:17:37 If you sign and date these documents and get into a regular habit of doing it, then you're creating another one of those contemporaneous records that's going to hold a lot of power when it comes to settling on your extension of time. And as I say, you might not know at the time of writing those notes whether there's going to be a dispute at all. But if you get bitten, if you end up in a dispute and you've not taken that kind of record, you'll really, really wish you had. There's a final point to make, which is about how you serve your notices. This will differ from contract to contract, so you need to examine each of your subcontracts and make sure you're writing notices to the right person and delivering them in the way that it says in the contract. And what do I mean by that? Well, modern revisions of contracts will allow electronic service, but they'll specify an email address that that electronic service needs to be issued to. If you're issuing hard copies, it will tell you the name and address that you need to send those copies to.
Jacob Austin 00:18:39 They may need to be registered delivery or delivered by hand. Each subcontract will specify the method that you need to follow. If you serve incorrectly or to the wrong address and notice that could otherwise have been perfect can become invalid. And one final record is to keep proof of service for everything. That means when and how you issued it. Timestamped, stored, away, kept in case you need it. If you ever end up in an adjudication, ask yourself this question and do it now. If you're not in one for good practice. The question is, could a third party somebody who's never seen the project and doesn't know anything about it? Follow the chain of events from the information that I've got from the start of the contract through to the sum that you're claiming through to the extension of time that you want, using only your documents in 28 days. If the answer to that question is no, then your records need work. But you should now have a good idea of how to go about setting them up.
Jacob Austin 00:19:41 So to sum up the key learning points from today's episode. Adjudication is your statutory right under your subcontract and under the Housing Grants and Construction and Regeneration Act. You can refer a dispute at any time under the act. You don't need the main contractor's permission and the decision should come fast. The smash and grab route, as it's regularly known, is adjudicating for the notified some when a pay less notice or payment notice hasn't been served. It's one of the most powerful cash flow tools available to subcontractors, but it only works if your application is compliant in the first place. Pay now and argue later is one of the overarching Principles. Meaning, if a decision is made in your favor, the contractor has to pay you. If they want to argue, they do it later. The courts will enforce that view. So if you have the notified sum on your side, then to protect your cash flow, adjudicate promptly and don't wait. Keep different types of dispute clean and separate from each other. Payment cycle. Valuation defects.
Jacob Austin 00:20:48 Extension of time. They all interact with each other in terms of sums of money, but they are different claims. So know which one you're running and why. Finally, and most importantly, your records are your case. Contemporaneous, traceable, and contract correct records are your friend in adjudication. If the records that you've got can't be read as a standalone narrative by somebody who doesn't know your project, then it won't survive adjudication scrutiny. So build the discipline of getting it right, because if you need it, you'll thank yourself later. I hope that helps. My mission with this podcast is to help the million SM contractors working out there in our industry. If you've taken some value away from today's episode, then I really need your help to share the show and pass that value on somebody else who'd benefit from hearing it, so that I can help as many people as possible. And thanks for tuning in. For more information about what I've spoken about and for other podcast episodes, you can find me at SubcontractorsBlueprint.uk and we're also on all your favourite socials at @SubcontractorsBlueprint.
Jacob Austin 00:21:58 And remember, miss the contract detail and the commercial risk falls on you. Thanks all. I've been Jacob Austin and you've been awesome.
