Construction Adjudication: When a Fast Answer Helps and When It Falls Short

Construction disputes can quickly affect cash flow, supplier relationships, schedules and the ability to keep work moving in a construction project. Ontario’s adjudication regime offers a faster interim determination of certain disputes, but a fast answer is not always a complete or useful one.

Subject to limited exceptions, the Construction Act requires an adjudicator to make a determination within 30 days after receiving the required documents. That speed can be commercially valuable when a payment or change dispute threatens payroll, supplier obligations, the release of funds or the next stage of work.

The question to consider in deciding whether to use this process is not simply whether a dispute can be adjudicated. It is whether this speedy adjudication will solve the immediate problem or add another layer to a broader dispute. This article examines when adjudication can keep a project moving, and when another approach may be more effective.

When Adjudication Helps

Cash Flow is the Immediate Problem

Adjudication can be particularly valuable where a payment dispute is affecting the completion of the project.

Consider a general contractor that has completed a significant portion of its work, but has not been paid a disputed progress payment. The general contractor may need those funds to pay subcontractors, suppliers, and employees. Waiting for litigation or arbitration to reach a final determination may create problems long before the underlying dispute is resolved if the project cannot be finished without ongoing cooperation from those affected.

This situation is one of the many commercial reasons Ontario’s prompt-payment and adjudication regime exists. In Jamrik v. 2688126 Ontario. Inc., the Divisional Court recognized that Ontario’s prompt-payment regime is intended to address interruptions in the flow of funds on construction projects. The provisions reflect the legislative objective of allowing money to continue to flow and work to continue while the parties pursue a final determination of their claims, so projects do not halt or fail.

Narrow Issues

Adjudication can also be effective where the specific dispute itself can be addressed without resolving every disagreement between the parties.

For example, suppose an owner and contractor agree that a change order was properly directed, but disagree about whether the proposed change is worth $100,000 or $175,000. If the issue can be addressed through a review of the relevant contract documents, pricing information, and costs associated with just the specific change, without requiring a full reconstruction of the entire project history, adjudication may provide a timely path forward.

This can be particularly valuable where the unresolved issue is holding up a project decision. The parties may not agree on every aspect of their contractual relationship, but they may nevertheless need an answer to one particular question before further work can proceed.

In these circumstances, adjudication can provide a practical middle ground: the parties obtain a decision on the issue requiring immediate attention, while still preserving the ability to address any other remaining claims through negotiation, litigation, or arbitration if required. The speed inherent in adjudication becomes a commercial advantage in these cases, rather than simply a procedural feature.

When Adjudication May Fall Short

The same characteristics that make adjudication attractive can make it less suitable for complex disputes.

Consider an owner facing a $1 million payment claim from a contractor. The owner says the contractor is owed little or nothing because the project has experienced significant delays, substantial deficiencies remain outstanding, and several disputed changes have increased the contract price. The contractor may want the payment claim adjudicated immediately. From the owner’s perspective, however, the payment dispute may be inseparable from the contractor’s overall performance. If there was adjudication, the adjudicator may determine the immediate payment issue without finally resolving the parties’ competing claims concerning delay, deficiencies, changes, or damages. That may still provide useful interim relief, but it may not address the underlying dispute and could result in the same facts being reviewed twice to address the competing, broader claim later on.

In addition to failing to resolve the entire dispute, adjudication as a quick mechanism might not be suited to certain issues. Adjudicators are permitted to limit the parties’ page counts or document brief lengths in order to keep adjudications moving quickly. However, where an issue is particularly complex, the “rough justice” approach to adjudication might make it more difficult for a party to articulate or prove its case. An adjudication decision can also be challenged, which can create further delay before the interim relief from the adjudication is settled.

The key question is therefore not simply whether a dispute can be adjudicated, but whether the issue can be meaningfully separated out from the broader dispute and resolved effectively on an interim basis.

Adjudication as a Tool, Not a Default

Adjudication is best understood as one tool within a broader dispute-resolution strategy, rather than an automatic response to every construction issue.

Owners, developers, contractors, and other project stakeholders should consider what they need to accomplish, how quickly they need to accomplish it, and whether an adjudication will meaningfully advance that objective.

Where an urgent and relatively focused issue is preventing payment or disrupting the project’s progress, adjudication can provide an important interim solution. Where the immediate dispute is closely intertwined with broader claims, or is particularly complex, a rapid determination may provide only a partial answer and may only lead to further costs and delay.

Before commencing an adjudication, project participants should consider:

1. What immediate problem are we trying to solve?

2. Can that problem be separated from any broader disputes?

3. Will an interim determination change the project’s next step?

4. What issues will remain unresolved after the adjudication?

When the answers point to a focused, urgent issue that allows a project to continue moving forward, adjudication may be an effective tool. When they do not, the adjudication option may not be the most effective solution to the underlying business concerns, and other tools should be considered as part of the overarching dispute resolution strategy.

To assess whether adjudication can advance your project objectives—or whether another dispute-resolution process may be more effective—reach out to a member of our Construction Group.