Adjudication

The legal process under each state's Security of Payment Act for resolving construction payment disputes. An independent adjudicator decides the dispute within weeks. Decisions are binding and enforceable through the courts.

Definition

Adjudication is the formal dispute resolution process under each state's Security of Payment Act. An independent adjudicator (a registered professional, typically a construction lawyer or experienced industry figure) decides a construction payment dispute within a defined window, usually 10-15 business days, and issues a binding decision that the courts will enforce.

Why it matters

Adjudication is the mechanism that gives Security of Payment legislation its teeth. Without adjudication, SOPA would just be a faster way to send invoices. With adjudication, a subcontractor whose payment claim has been rejected or under-scheduled has a real, fast, binding legal pathway to a decision. Adjudication decisions stand even if subsequently challenged in court. The courts can review adjudications on narrow procedural grounds, but in practice most adjudications are final.

How it works in practice

After a payment claim has been served and the builder has either ignored it or responded with a payment schedule the subcontractor disputes, the subcontractor applies to an authorised nominating authority (the body that appoints adjudicators in their state). The application includes the claim, the response, and any supporting documentation.

The nominating authority appoints an adjudicator. The adjudicator reviews the documents, may seek additional information from either party, and issues a written decision within the statutory timeframe.

The decision specifies an amount payable, if any, and the date by which it must be paid. The respondent has a short window (usually 5 business days) to comply. If they don't, the claimant can seek enforcement orders from the courts. Enforcement is summary and fast.

Adjudication costs vary by state and by the size of the claim, typically $1,500 to $5,000 for smaller claims and more for larger ones. The losing party usually pays the costs, but the cost rules vary by state.

Common misconceptions

Adjudication is the same as a court trial

It isn't. Adjudication is much faster, much cheaper, and conducted on documents in most cases. There's no formal cross-examination. The decision is on the documents and any limited additional information the adjudicator requests.

An adjudicator's decision can't be challenged

It can be, on narrow procedural grounds (such as the adjudicator exceeding their jurisdiction, denying a party natural justice, or the application being defective). The grounds for setting aside an adjudication are limited, and the courts give adjudicators significant deference.

Adjudication is only for big disputes

It works for any size of dispute, including invoices in the hundreds or low thousands. The cost can make small claims uneconomical, but the legislation is available regardless of claim size.

Once you've been to adjudication, you can't go to court

Adjudication decisions don't permanently resolve the underlying contract dispute. They resolve the immediate payment question. Either party can later pursue contract claims through ordinary court proceedings, although in practice most don't because the adjudication has settled the practical question.

This entry provides general information only and is not legal advice. If you're considering adjudication or facing one, talk to a construction lawyer who practices in your state.