February 11, 2025

How can main contractors avoid ‘smash and grab’ adjudications?

In this timely article, Tim Seal, Head of Construction at Ridgemont Legal Services Ltd, a specialist Construction law firm, gives advice on how main contractors can avoid ‘smash and grab’ adjudications.

The term smash and grab adjudication (SGA) refers to a particular type of dispute brought via adjudication. Despite its name, SGA does not involve doing anything underhand though. The term just captures the idea of a relatively quick and easy way to recover the whole of a payment for construction work.

Let’s start with a refresher of the basics of statutory payment and adjudication. The starting point is Part 2 of the Housing Grants, Construction & Regeneration Act 1996 (“the Act”). There you find the key provisions. Behind those sits the more detailed Scheme for Construction Contract (England and Wales) Regulations 1998 (“the Scheme”).

First, the Act requires there to be a construction contract. If there is, the rights and obligations of payment and adjudication automatically arise. Otherwise the parties can expressly provide for these things.

The meaning of construction contract in the Act contains few surprises. However, if the contract relates to a residential occupier (ie the works principally relate to a dwelling which one of the parties occupies as its residence), the contract is then excluded from the Act.

The right to adjudicate means that a party to the contract can bring to adjudication any dispute arising under it. It is a fast track 28 day resolution process leading to a Decision that is immediately binding and where parties bear their own costs.

As for the statutory payment rights, if it’s agreed that the contract works will last less than 45 days, they don’t apply. Otherwise the Act sets out a process for determining payment by instalments, stage payments or other periodic payments, via a system of regular payment applications and notices.

Turning then to SGA. Where a payee submits a valid payment application and/or payment notice, and the payor fails to serve a valid payment and/or pay less notice, the payee is entitled to be paid the whole of the sum it claimed in its application/notice by the final date for payment. So, if a payor fails to serve a notice, or it does so but it is an invalid one, it may be faced with having to pay a sum it wholly disputes and sometimes cannot afford. That can be draconian. There are few ways out of this problem and SGA is the claim that the payee brings to exploit it.

So how does a contractor avoid this problem?

Well first of all, by understanding the statutory payment regime. Many do not though, either because they invest little/no time in doing so, or because they misunderstand it. It is deceptively full of traps. Further, sometimes the payment regime set out in the contract, either bespoke or badly amended standard form, is wrong: ie it is inconsistent with the requirements of the Act. To the extent that that happens, it is invalid and the Scheme corrects it with its own provisions. Therefore a party might not realise that it is following invalid provisions. If the other party does and applies the corrected position, it may catch out the other party.

Second, for every project, at the outset create a schedule of the deadlines for taking each step in every payment cycle, so that none are missed.

Third, ensure that you use valid template applications and notices, so that they don’t contain flaws that may render an application or notice defective and expose you to SGA.

Fourth, in an ideal world, contract with parties that don’t enforce their right to bring SGA if you drop the ball and open that doorway for them. If you can reach a compromise over SGA, naturally that would be preferable.

Fifth, understand that a party cannot write in to a contract, provisions to take away a payee’s right to SGA, because that would offend the statutory rules and be almost certainly invalid.

Sixth, are there sums in the payee’s claim that manifestly cannot be claimed regardless of the notice’s/application’s validity? For example, is there a sum for an entirely different project? These will not get through a SGA.

Finally, a contractor should consider what counter-measures it can take to mitigate the problem it faces with a SGA. Is there a jurisdictional challenge it can make? For example has the correct contracting party brought the adjudication and has the right nominating body been used? Further, are there court proceedings that can be started to stop the adjudication or a counter adjudication started? A discussion of this point falls outside the scope of this article. 

SGA adjudication is one of, if not the most common form of adjudication and it invariably arises from a mistake. So the lesson is: make fewer mistakes.

Tim Seal, Head of Construction at Ridgemont Legal Services Ltd