News
Amendments to the Construction Act
22 December 2008
The Queen's Speech on 4 December 2008 included proposed legislation to amend the Housing Grants, Construction and Regeneration Act 1996 ("Act"), affecting the provisions for adjudication and payment in the construction industry.
The amendments are contained in Part 8 of the Local Democracy, Economic Development and Construction Bill ("Bill"), which has now been published and had its first reading in the House of Lords.
This part of the Bill is unlikely to be controversial, but there could be changes of detail at the committee stages. Amendments may also be made to the Scheme for Construction Contracts.
Once the Bill has been enacted, Part 8 will not come into force until a day appointed by the Secretary of State. This means the amendments are unlikely to apply to any contract for some time to come.
The amendments
Broadly, the aim is to address certain problems with the Act and achieve a more level playing field for smaller construction businesses.
The main amendment is to repeal the provision that the Act only applies to contracts that are in writing. If passed, the Act will apply to both written and oral contracts, which should put an end to disputes about whether a contract is in writing.
Adjudication
The key amendment specifically affecting adjudication concerns costs. Any agreement between the parties as to how the costs of adjudication (including the fees of the adjudicator) are to be allocated will be ineffective, unless this agreement is reached after the referral notice has been issued. This means that no one will be committed in advance of any adjudication as to how the costs will be shared.
Payment
Delayed Payment
The Bill contains measures to prevent payments to sub-contractors being delayed by operations carried out under other contracts. This apparently is to address the problem of payments to sub-contractors being determined by certificates issued under an upstream contract, which may cover work done by others as well.
Payment Notices
The Bill also amends the provisions about payment notices. It replaces the current notice of payment/ ‘withholding notice' regime, but the effect is broadly the same.
The contract has to require either the payer or payee to give a notice of payment no later than 5 days after the due date for payment and there is provision for the payee to give a default notice if the payer fails to give the notice of payment.
A payer (or a specified person on his behalf) will be able to issue a "notice of intention to pay less" specifying a lesser amount than the notified sum and the basis on which that lesser amount is calculated. The lesser amount can be zero.
If a "notice to pay less" is issued, the payer must pay the lesser amount within the prescribed period. If no notice is issued then the payer must pay the notified sum.
Suspension
A party who validly suspends its work because of non-payment will under this Bill now also be entitled to (a) its reasonable costs and expenses arising from the suspension and (b) an extension of time covering the period of the suspension as now but also any additional time spent "in consequence of the exercise" (eg re-mobilisation).
We will be following the Bill's passage and providing updates on our website.
For further information please contact Rachel Barnes or Antony Smith.