BuildLaw, Issue 18 Editorial Part 2

Is a Previous Adjudicator’s Decision Binding?

 
In the first UK case on natural justice in 2013, Arcadis v May & Baker [2013] EWHC 87 TCC, Mr Justice Akenhead had no hesitation in saying in that that there was nothing improper nor contrary to the rules of natural justice for a decision in one adjudication to be placed before a second adjudicator for consideration in a subsequent adjudication, or for the second adjudicator to have regard to any previous decision which the adjudicator found to be germane and persuasive on the basis that the courts look at previous decisions all the time.
 
In an article titled ‘Is a previous adjudicator’s decision binding?’ Madeleine Young from MacRoberts LLP’s Glasgow office discusses the Arcadis case which highlights among other things, the UK Courts’ reluctance to encourage dissatisfied losing parties in adjudications to scrabble around and comb through the reasons to find some argument, however tenuous, on which to present a challenge under the label of ‘excess of jurisdiction’ or ‘breach of natural justice’ to resist payment.
 
Of interest was the Court’s response to Arcadis’ complaint that the adjudicator had “gone off on a frolic of his own” by “splitting the difference” on the quantum between the parties’ figures. Whilst Akenhead J described the act of splitting the difference as “Solomon-like in its simplicity” he concluded that the adjudicator was effectively choosing between two figures, both of which had an evidential basis, and was not coming up with some basis of assessment which the parties had not had an opportunity to address as the adjudicator did in the earlier Herbosch-Kiere marine Contractors Ltd v Dover Harbour Board [2012] EWHC 84 (TCC) case.
 
It is worth noting of course that if an issue has already been determined in an adjudication, the determination of that issue is binding on the parties unless and until it is subsequently varied or set aside by agreement of the parties, or by an arbitrator or a court. Plainly, and practically, it would be difficult for an adjudicator to be expected to make a decision on a challenge as to jurisdiction based on the matter having already been determined in a previous adjudication without looking at the previous determination.
 
Akenhead J’s view that ”Adjudicators must be trusted, generally at least, to be able to reach honest and intelligible views as to the extent to which earlier decisions are relevant or helpful or not” is strangely enough, a sentiment that resonates closely with my view of adjudicators - generally!!!
 

Procurement –  Challenge or Crisis?

 
According to an independent market survey released on 11 June 2013 by AECOM’s Business Intelligence Unit, “sentiment in New Zealand’s building industry is showing signs of a more positive outlook in the six months to May, although uncertainty persists in the infrastructure market.”
 
AECOM’s report found the scale, sheer volume and complexity of the rebuild in Christchurch is fuelling differing views around the procurement process, and exacerbating broader uncertainty about the timing of key projects.
 
In the Canterbury region, satisfaction and dissatisfaction with the process is split almost 50:50, while across the rest of the country, 28 percent of respondents cited “no confidence at all” in the procurement process. A number of respondents offered ideas about how to improve the procurement process, including the suggestion that a prequalification selection process may offer a better, less costly solution for both sides of the procurement equation.
 
On 17 August 2013 the New Zealand Herald reported that the horrendous cost of repairing a leaky Auckland school is changing the traditional Government view that the cheapest tender is the best tender.
 
It was reported that the Ministry of Education has paid $19.5 million to repair Macleans College in Building and Construction Minister Maurice Williamson's Pakuranga electorate. The Ministry has had to remove 23 rotten buildings from McLeans College and the repair bill was so large that Cabinet ministers had to give special approval to free up more money for remediation.
 
More than 300 schools and 800 buildings nationwide have been affected at a total cost of at least $1.5 billion causing Building and Construction Minister Maurice Williamson to conclude that the problem was also a symptom of getting the cheapest construction contracts possible and that the costly remedial work was the result of flawed tender processes in which the initial price of construction was prioritised over the whole-of-life cost of maintaining the buildings.
 
The Minister is reported to have said "The ministry went for least-price whips. They nickelled and dimed every bid, got the pencil as sharp as they could and then even took a bit of a margin off that, if they could. A few years later, the whole lot's turned to absolute crap and if you have to pull the whole lot down then it's not what you'd call the best deal."
 
It is understood that these repair costs have prompted the Government to review how it chooses tenders for taxpayer projects with Maurice Williamson reported to have said "(Macleans) was the worst contract we've ever done and yet we got it for the cheapest price. 'Cheapest price wins' is a mentality that we're changing."
 
In April this year Economic Development Minister Steven Joyce proposed new rules for Government procurement explaining that the emphasis would shift from who can deliver the lowest costs to who can deliver the best value for money and other direct financial benefits over the life of a contract.
 
It would seem that finally there is both a need and political and commercial will to change the conventional procurement process. Unless there is a sea change away from the conventional lowest tender methodology to a value based contracting model it is difficult to see how the country will cope with the $40+billion building boom projected to hit the country over the next five years.
 
Davis Langdon New Zealand director, Trevor Hipkins, is quoted in the recent AECOM survey as saying: “Although the peak of this work is anticipated to be at least a year or two away, we are starting to see some increased pressure on resources in the construction and property consultancy sector. The pressure will gather pace and we anticipate that building costs will start to increase significantly once the rebuild gets underway.  This will also have a knock on effect on resources and margins throughout the country”.
 
Some respondents to the survey suggested that this resourcing issue will, and should, curb the pace of the Canterbury rebuild to a steadier and more achievable level. However, the number of players competing for jobs has been exacerbated by the failure of Mainzeal earlier this year and ongoing margin cutting and a persistent adherence to building at the absolute lowest cost. Some respondents were concerned that “procuring organisations don’t have long term procurement skills and a track record” while others felt the limited number of players in the market meant that new, innovative approaches were less likely to emerge.
 
The enormous scale and complexity of the Canterbury rebuild was always going to make procurement a key challenge, however the construction team at Simpson Grierson say the market is already embracing alternative contracting models to deliver large and complex projects.
 
In the article ‘ECI: what is it, why use it and where is it going’ the team at SG explain that one such model is ECI – ‘Early Contractor Involvement’ and, because of the benefits associated with this approach including greater certainty and control over outcomes, they say ECI is being increasingly adopted on major projects in New Zealand.
 
It is clear that New Zealand’s building and construction industry continues to face a range of obstacles to project delivery. In order to meet the procurement challenges that lie ahead we will undoubtedly see multiple variants of every known procurement methodology tried and tested. But one thing is certain however. If we are to avoid a procurement crisis over the next five years the focus must shift from lowest price to best value for project where the whole-of-life cost of maintaining the building or structure is prioritised over short term build cost gains. If we don’t, then as the Minister so plainly put it, “the whole lot [will turn] to absolute crap and if you have to pull the whole lot down then it's not what you'd call the best deal."
 
While on the topic of procurement, tendering continues to be a troublesome exercise for many contractors the world over (See our article: ‘Love me tender’ in Buildlaw Issue 16). However, few contractors would likely be as persistent and unsuccessful as Trevor Nicholas.
 
In the article ‘Supreme Court denies leave in tender case – refuses to rewrite history’ Thomas G Heintzman QC discusses the recent decision of the Supreme Court of Canada in Trevor Nicholas Construction Co. Ltd. v. Canada. The Court refused leave to appeal and in doing so, it has upheld the decisions of the Federal Court Trial Division and Federal Court of Appeal which declined to permit a bidder to rely on after-the-fact information to overturn an invitation to tender. 
 
The decision brings to an end 23 years of disputes and litigation over tenders. There have been 20 reported decisions in the two actions brought by Trevor Nicholas over these tenders. This is a remarkable amount of unsuccessful litigation.
 
One can well understand the frustration of a contractor repeatedly losing out on invitations to tender on which it was the low bidder.  This frustration is then fed by discovering later facts which demonstrate, in its view, that the decisions to by-pass it were unjustified. 
 
In invitations to tender, bidders are outsiders to the decision-making process.  When they are excluded for subjective reasons, such as unsuitability or incapacity, there is a natural tendency to blame the process and to jump to the conclusion that the process was unfair.
 
But as Tom puts it, the invitation to tender process cannot be run by “monday morning quarterbacking.”  Business is business, and courts are not going to paralyse the tender process by raising the spectre of penalizing owners if facts are later discovered which call into question the wisdom of the tendering decision.  Fairness will be judged by the fairness of the process, and the later discovery of new facts does not render a prior process unfair.
 
The Supreme Court’s decision not to allow an appeal, may signal a growing unwillingness of courts to disturb the tender process based upon facts or events occurring after the tender is completed.
 
In April this year Economic Development Minister Steven Joyce proposed new rules for Government procurement explaining that the emphasis would shift from who can deliver the lowest costs to who can deliver the best value for money and other direct financial benefits over the life of a contract.
 
It would seem that finally there is both a need and political and commercial will to change the conventional procurement process. Unless there is a sea change away from the conventional lowest tender methodology to a value based contracting model it is difficult to see how the country will cope with the $40+billion building boom projected to hit the country over the next five years.
 
Davis Langdon New Zealand director, Trevor Hipkins, is quoted in the recent AECOM survey as saying: “Although the peak of this work is anticipated to be at least a year or two away, we are starting to see some increased pressure on resources in the construction and property consultancy sector. The pressure will gather pace and we anticipate that building costs will start to increase significantly once the rebuild gets underway.  This will also have a knock on effect on resources and margins throughout the country”.
 
Some respondents to the survey suggested that this resourcing issue will, and should, curb the pace of the Canterbury rebuild to a steadier and more achievable level. However, the number of players competing for jobs has been exacerbated by the failure of Mainzeal earlier this year and ongoing margin cutting and a persistent adherence to building at the absolute lowest cost. Some respondents were concerned that “procuring organisations don’t have long term procurement skills and a track record” while others felt the limited number of players in the market meant that new, innovative approaches were less likely to emerge.
 
The enormous scale and complexity of the Canterbury rebuild was always going to make procurement a key challenge, however the construction team at Simpson Grierson say the market is already embracing alternative contracting models to deliver large and complex projects.
 
In the article ‘ECI: what is it, why use it and where is it going’ the team at SG explain that one such model is ECI – ‘Early Contractor Involvement’ and, because of the benefits associated with this approach including greater certainty and control over outcomes, they say ECI is being increasingly adopted on major projects in New Zealand.
 
It is clear that New Zealand’s building and construction industry continues to face a range of obstacles to project delivery. In order to meet the procurement challenges that lie ahead we will undoubtedly see multiple variants of every known procurement methodology tried and tested. But one thing is certain however. If we are to avoid a procurement crisis over the next five years the focus must shift from lowest price to best value for project where the whole-of-life cost of maintaining the building or structure is prioritised over short term build cost gains. If we don’t, then as the Minister so plainly put it, “the whole lot [will turn] to absolute crap and if you have to pull the whole lot down then it's not what you'd call the best deal."
 
While on the topic of procurement, tendering continues to be a troublesome exercise for many contractors the world over (See our article: ‘Love me tender’ in Buildlaw Issue 16). However, few contractors would likely be as persistent and unsuccessful as Trevor Nicholas.
 
In the article ‘Supreme Court denies leave in tender case – refuses to rewrite history’ Thomas G Heintzman QC discusses the recent decision of the Supreme Court of Canada in Trevor Nicholas Construction Co. Ltd. v. Canada. The Court refused leave to appeal and in doing so, it has upheld the decisions of the Federal Court Trial Division and Federal Court of Appeal which declined to permit a bidder to rely on after-the-fact information to overturn an invitation to tender. 
 
The decision brings to an end 23 years of disputes and litigation over tenders. There have been 20 reported decisions in the two actions brought by Trevor Nicholas over these tenders. This is a remarkable amount of unsuccessful litigation.
 
One can well understand the frustration of a contractor repeatedly losing out on invitations to tender on which it was the low bidder.  This frustration is then fed by discovering later facts which demonstrate, in its view, that the decisions to by-pass it were unjustified. 
 
In invitations to tender, bidders are outsiders to the decision-making process.  When they are excluded for subjective reasons, such as unsuitability or incapacity, there is a natural tendency to blame the process and to jump to the conclusion that the process was unfair.
 
But as Tom puts it, the invitation to tender process cannot be run by “monday morning quarterbacking.”  Business is business, and courts are not going to paralyse the tender process by raising the spectre of penalizing owners if facts are later discovered which call into question the wisdom of the tendering decision.  Fairness will be judged by the fairness of the process, and the later discovery of new facts does not render a prior process unfair.
 
The Supreme Court’s decision not to allow an appeal, may signal a growing unwillingness of courts to disturb the tender process based upon facts or events occurring after the tender is completed.
 
Editorial Part 3 - Click here to continue reading
 

An Authorised Nominating Authority
under section 65 of the Construction Contracts Act 2002