One key word causing worry in Procurement risk: Adjudication

Tuesday, September 2nd, 2014

Is it unreasonable for a Board of Directors to believe that a professional procurement operation will have a positive relationship with in-house legal services?

This crucial relationship should be such that contractual detail is thoroughly understood and negotiated prior to contract signature.

We hold the view that Procurement should be the custodian of contractual risk management.

There is, potentially, a mass of detail to understand.  There is, of course, always a danger that the terms in common use are deemed to be straight forward.

“Adjudication” is such a term.

(For completeness, Adjudication is the legal process by which an adjudicator or judge reviews evidence and argumentation including legal reasoning set forth by opposing parties to come to a decision which determines rights and obligations between the parties involved).

What could possibly go wrong?

In a contract Adjudication was included; here’s an excerpt:

“the partners have the right to refer any dispute under the sub-contract to Adjudication in accordance with the attached Adjudication Rules ORSA/CEDR current at the time of the dispute either party may give notice in writing to the other at any time of his intention to refer the matter to Adjudication.”

A different clause then provided for arbitration as the final dispute resolution process.  The Adjudication Rules provided that:

“The Adjudicator’s decision shall be binding until the dispute is finally determined by …arbitration”

However another clause provided that, if no notice of dissatisfaction with the Adjudicator’s decision was given within 60 days of notification of the decision:

“the decision of the Adjudicator shall be final and binding upon the parties”

You may now predict that a dispute did arise – in fact there were three adjudications.  The third adjudication claim ran to 221 pages!

Away the case went to court, where Mr Justice Akonhead decided that the third Adjudication was null and void.

The takeaway: Test the terms of any contract by devising a theoretical scenario that could occur and Procurement adopting a devil’s advocate role.

– Ray

PS – a quick opportunity and a favour for those of you who are into contract risk management.

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