By Mark Buckshon
Ontario Construction News staff writer
How much will adjudicators earn when they start resolving cases under new Ontario Construction Act regulations which went into effect in October?
There are clues in documentation provided by Ontario Dispute Adjudication for Construction Contracts (ODACC), which is the monopoly-structured Authorized Nominating Authority (ANA) for adjudicators under the province’s prompt payment legislation.
There are also many uncertainties – notably because the system is new and untested through real-world experience.
The clues suggest that many adjudicators will at best earn a small part-time income, while a few will earn significant fees, those working on disputes about large contracts greater than $100,000 to $1 million or more.
While the new rules took effect on Oct. 1, they only apply to projects and contracts that either had commenced or were in the procurement stages after that date. So, unless the project is very small and/or there is an early-stage payment dispute, the first adjudications won’t reach the system for several months.
(When the United Kingdom introduced an adjudication system years ago, the first cases only started appearing about a year after the law went into effect.)
However, one difference between the UK and ODACC model is that the adjudication process has been designed to be practical for even the smallest contractors and disputes. (Consultants and lawyers familiar with the British model suggest that adjudication isn’t practical for disputes there less than $75,000 to $100,000 because of the associated legal costs and fees.)
ODACC project manager Carina Reider says that ODACC believes in most cases, adjudicators will be selected by mutual agreement and that the disputing parties and the adjudicator will negotiate their fees.
However, there is a fail-safe system in place: If the disputing parties cannot agree on an adjudicator, ODACC will appoint one from its roster, and then, if they cannot agree on the adjudicator’s fees, ODACC has set out standard processes and fee schedules for disputes, based on the disputed dollar value.
In these cases, if the amount disputed is less than $9,999, then there is a flat $800 adjudication fee, generally split evenly between the two parties. Disputes between $10,000 and $24,999 have a $1,000 fee. From $25,000 to $34,999 the fee would be $2,000 and from $35,000 to $49,000 the fee would be $3,000.
Projects greater than $50,000 have a fee schedule based on hourly rates, rising as the amount to be resolved increases, from $250 per hour for disputes under $299,000 to $750 or more for disputes greater than $1 million.
As of Dec. 12, there were 23 adjudicators on the ODACC registry. To qualify, the adjudicators must have 10 years construction industry experience, complete an online course and in-class sessions, and pass an evaluation exam to verify their qualifications. Prospective adjudicators need to pay ODACC a $995 training fee plus an additional $250 plus HST to complete the registration process.
“We can now confirm that there have been a lot of high quality applications from people with a wide array of backgrounds to become adjudicators,” Reider says. “ODACC receives new applications every day. ODACC anticipates that it will have well over 100 qualified adjudicators (all with significant experience and all skilled) on the approved registry.”
Reider says adjudicators can set their own hourly fees, which so far range from $250 to $750 an hour, based on their published fees on the ODACC website.
ODACC collects a fee for each adjudication, equal to 50 per cent of the adjudication cost for adjudications costing under $3,000 and 40 per cent of the adjudication cost for more expensive adjudications.
ODACC believes in most cases, the disputing parties will select their adjudicator by mutual agreement, and the adjudicators will negotiate their fees, regardless of the fact they reached the adjudications stage because they were in conflict. Reider says ODACC’s “understanding of the experience in other jurisdictions” is the disputing parties “can usually agree on the adjudicator.”
Larger disputes certainly can command high fees and revenue for both the adjudicators and ODACC. Overall, disputing parties will face significant costs, even when both parties are sharing their adjudication fees, because in these large cases it is likely each party will hire its own legal and expert counsel.
But what about the small cases?
Say, for a $24,000 two-party dispute, representatives of each side would be expected to pay their own share of adjudication costs (and if they don’t agree to pay the adjudicator a higher amount), they would each pay $500 – and the adjudicator would earn $500.
If the adjudicator’s hourly rate is $250, this suggests that the complete review and decision would need to be made in two hours or less. Is that practical?
One answer may rest with the closest equivalent for adjudication of smaller cases, the Small Claims Court system. In Small Claims Court, a judge will review dozens of cases in a day, rendering quick decisions. Presumably adjudicators could move quickly with their review and decision-making on simple matters.
“ODACC believes that it is definitely practical for an adjudicator to do an adjudication in two hours (or, in some cases, less than two hours) because the adjudicator can set the process so as not to require him or her to spend too much time,” Reider said.
But how much volume will there be? ODACC says it doesn’t plan to cap the number of qualified adjudicators. If there are only a few adjudications, and there are several adjudicators, adjudicators’ earnings will be at best a modest part-time top-up, except for the rarer larger filings.
Contractors seeking payment who qualify for adjudication under the Construction Act have good reason to file – while the decision isn’t final, it is binding unless it is litigated further and overturned by a court.
The “winner” in the adjudication process has the right to collect and keep the money pending a final court decision, reversing the dynamics of conventional construction payment dispute claims – where a contractor seeking payment has to spend thousands of dollars on litigation while the respondent holds onto the money until the court reaches a decision.
Assuming there are 100 adjudicators working on files at the ODACC fail-safe rates for amounts less than $50,000 with an average adjudication fee of $1,500 (of which $750 is retained by ODACC), there would need to be more than 6,500 adjudications a year for each adjudicator to earn $50,000.
Of course, this number ignores the much larger adjudications, which ODACC believes will represent the largest part of its business volume. The fortunate adjudicators earning $750 or more an hour on large, complex dispute will clearly earn professional-level incomes.
Presumably there is an opportunity for adjudicators to conduct some self-promotional marketing because the parties choose any adjudicator they mutually approve, and in these cases, the adjudicator can set out both the fees and processes. And adjudicators may be able to convince the disputing parties to pay fees higher than set out in the ODACC schedule, even if ODACC selects the adjudicator for the dispute.
“Fees are negotiated between the parties and the adjudicator for each case and there is no set fee for projects below $50,000 or above $50,000,” writes ODACC’s Carrina Reider. “The percentages paid to ODACC to cover its costs and the percentage paid to the adjudicator for his or her work are based on the amounts negotiated and paid by the parties, not on the amount in dispute. If the parties and the adjudicator cannot agree on the fee, the fee will be set by ODACC and will be proportionate to the amount in dispute.”
“An adjudicator determines the process that he or she deems appropriate, based on the fee and the case, so the adjudicator will receive fair compensation for the fee received by the adjudicator,” she writes.
“In terms of the percentage of the fees that go to the adjudicator and the percentage that goes to cover ODACC expenses, the percentage was approved by the Attorney General on the recommendation of its independent Fairness Monitor Ernst & Young, based on detailed cost and revenue projections for the five-year term of the ODACC contract.”
“ODACC costs include a new, state-of-the-art custom built computer platform that ODACC was required (by the Ministry of the Attorney General) to create (and will cost close to $1 million), salaries, rent, overhead, etc.,” Reider says.
“ODACC is incurring the bulk of its costs up-front, with no guarantee of any volume of work and no guarantee that it will recover its costs over the course of the work it does for the Ministry of the Attorney General. In fact, ODACC anticipates that its costs will likely exceed its revenue for a number of years.”