Adjudication Clauses in Contracts: A Complete Guide

When there is a disagreement over a business or construction contract, the adjudication process is one of the most important things to know. This term refers to a quick, temporary way to settle disputes that keeps projects moving while disagreements are worked out. Unlike arbitration or litigation, which can take months or years, the adjudication process requires a temporary, binding decision to be made in a short amount of time—usually 28 days.

For contractors, subcontractors, suppliers, and project owners, having a well-written adjudication clause can mean the difference between a project that gets stuck and one that keeps making money even when there are legal problems.

What does an adjudication clause mean?

An adjudication clause is a part of a contract that says the parties must settle some disagreements through adjudication before (or instead of) arbitration or going to court. It is most common in contracts for construction, engineering, and any other long-term business deal where cash flow and deadlines are very important. The clause will usually say which organization will choose the adjudicator (like the RICS, CIArb, or AAA), how costs will be split, and whether the decision is final or temporary.

Why go to court instead of going to court?

It can take 12 to 18 months for a traditional lawsuit to even get to trial. If a subcontractor is waiting on a disputed progress payment, that delay could lead to bankruptcy. Adjudication changes everything. In 28 days after a referral, both sides present their case, the adjudicator looks over the papers (but rarely holds oral hearings), and then makes a decision that everyone must follow. While that decision can later be challenged in arbitration or court, it must be complied with immediately. This "pay now, argue later" way of thinking keeps projects moving and money flowing.

How the Adjudication Process Works, Step by Step

To make the most of an adjudication clause, you need to know how the adjudication process works in practice. It starts when one side sends a "Notice of Adjudication" that points out the exact part of the contract that is in question. The parties have seven days to agree on an adjudicator or ask a nominating body to set up an appointment. The referring party then writes a "Referral Notice" that contains all the relevant contracts, invoices, letters, and a description of the problem. The person who is being asked to respond has 7 to 14 days to do so. The adjudicator can ask for more information, but only within the 28-day period (which can only be extended by both parties agreeing). The adjudicator writes a decision on the main issues at the end of this time, including who pays the adjudicator's fees. That decision is only binding for now, until a court or arbitrator makes a final decision.

Important Parts of a Good Adjudication Clause

A badly written clause can stop the whole adjudication process before it even begins. Your clause should at least include four things: (1) the types of disputes that can be settled (ideally, "any dispute arising under or in connection with this contract"); (2) the body that will choose the adjudicator (e.g., "adjudicator to be appointed by the Royal Institution of Chartered Surveyors"); (3) the rules that will apply (e.g., the Housing Grants, Construction and Regeneration Act 1996 for UK contracts or state-specific lien laws); and (4) a clear statement that the adjudicator's decision is binding until a final decision is made by arbitration or court. Also, think about adding language about the location of the adjudication and whether the adjudicator can act as an expert or an arbitrator.

Things to Stay Away From

Even with a strong clause, parties often make three mistakes. First, not following the time limits. If you don't respond within 28 days, the adjudicator will move on without your input. Second, giving too much proof. Adjudicators don't have the time or money to read thousands of pages. Instead, they should focus on the most important parts of the contract and a few key emails. Third, not thinking about the possibility of multiple adjudications. One project can lead to many disagreements. Your clause should say whether the adjudicator who was already chosen has the power to decide later disputes or if each new dispute needs a new appointment.

Putting the Adjudicator's Decision into Action

What happens if the losing party won't pay after the adjudication process has made a decision? In most places, you can ask your local court for summary judgment to enforce the adjudicator's decision. Courts don't often look at the merits of the adjudicator's decision again unless it clearly went beyond their authority or broke natural justice. The whole process of enforcing the order usually only takes 4 to 8 weeks. This speed is what makes adjudication better than mediation (which isn't binding) and similar to emergency arbitration at a much lower cost.

Example from the real world: The Subcontractor's Lifeline

Think about a drywall subcontractor who did $150,000 worth of work but hasn't been paid in 90 days. The contract has an adjudication clause that names the American Arbitration Association. On Friday, the subcontractor sends out a Notice of Adjudication. AAA hires a former judge to be the adjudicator by the next Monday. The adjudicator looks over the contract and the general contractor's defense (the work that was said to be bad) within 28 days. The judge finds no proof of a problem with the weekly sign-offs and orders the immediate payment of $130,000 (minus a reasonable holdback). The general contractor won't pay, but the subcontractor goes to federal court to get the money. The court makes a money judgment within six weeks. That same subcontractor would still be waiting for a trial date if there wasn't an adjudication clause.

A Template for Writing Your Own Adjudication Clause

If you are signing a contract for commercial construction or supply, use the following model clause:

"Any disagreement that comes up because of this contract, including any question about its existence, validity, or termination, will be settled by adjudication in accordance with the [Adjudication Rules of the Named Body]. The [Nominating Body] will choose the adjudicator. The place where the adjudication will take place is [City, State]. The language of the decision will be English. The decision of the adjudicator will be final and binding on both parties until the dispute is resolved through arbitration or litigation. The parties must immediately follow any order to pay money or do something, even if they have the right to contest that order.

Final Thoughts

An adjudication clause is not just legal boilerplate; it is the lifeblood of a project. Adding this clause to your contracts turns the adjudication process from an abstract legal idea into a useful way to manage your cash flow. No other way to settle a dispute can give you a binding, quick decision within 28 days. This is true whether you are a general contractor with dozens of subcontractors or a solo tradesperson protecting your lien rights. Look over your regular contracts today. Change them if they don't have a clause for adjudication. The few hours you spend writing could save your business months of expensive lawsuits and keep your next project on track, no matter what problems come up.