Construction Act

The Construction Act 1996 came into force on 1 May 1998, with the aim of reducing confrontation, and facilitating better cash flow and fair play. Almost four years later- and how do things look now?

Many clients and main contractors (ie “Builders”) have genuinely tried to enshrine the on Act into their sub-contract conditions. Others have gone to considerable lengths to evade the spirit, and often the letter, of the legislation.

The streetwise subbie must be on the lookout for these evasions and breaches. The time for maximum vigilance is at enquiry stage, when it is still possible to object and to negotiate more equitable terms which respect the Act. To assist in this aim, I summarise below (in very brief terms) the key elements of the Act, some of the principal “tricks and dodges” employed by clients and contractors, and the potential dangers to the subbie.

THE “HOUSING GRANTS, CONSTRUCTION AND REGENERATION ACT 1996” CAME INTO FORCE ON ALL NEW “CONSTRUCTION CONTRACTS” ENTERED INTO AFTER 1 MAY 1998. THE ACT INTRODUCES SIGNIFICANT REFORMS , ARISING FROM THE “LATHAM” INITIATIVE. THESE REFORMS FALL UNDER TWO PRIME HEADINGS, NAMELY:

“PAYMENT” and “ADJUDICATION”.

THE ACT COVERS ALL NORMAL CONSTRUCTION OPERATIONS INCLUDING LABOUR ONLY, SITE CLEARANCE, DEMOLITION, REPAIR WORKS, LANDSCAPING ETC.

THE ACT EXCLUDES SUPPLY ONLY, OFF SITE MANUFACTURE, SUPPLY AND FIXING OF PLANT IN PROCESS INDUSTRIES, , CONTRACTS WITH RESIDENTIAL OCCUPIERS, CONTRACTS NOT IN WRITING, PFI CONTRACTS (BUT NOT THE CONSTRUCTION CONTRACTS ENTERED INTO PURSUANT TO THEM), AND CERTAIN OTHER DEFINITIONS.

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PAYMENT UNDER THE ACT

BASIC REQUIREMENTS OF THE ACT :

EVERY CONSTRUCTION CONTRACT MUST CONTAIN THE FOLLOWING ELEMENTS :

PAYMENT BY INSTALMENTS

“ADEQUATE MECHANISM” FOR DETERMINING SUMS DUE AND WHEN

PRIOR NOTICE OF SUMS DUE AND MAKE UP

PRIOR NOTICE OF INTENTION WITHHOLD PAYMENT, GIVING GROUNDS AND AMOUNTS (IE “SET OFF”)

SUSPENSION OF WORK (BY SEVEN DAYS NOTICE) FOR NON-PAYMENT OF SUMS “DUE”

“PAY WHEN PAID” CLAUSES OUTLAWED. THE EXCEPTION IS WHERE A THIRD PARTY UPON WHOM PAYMENT DEPENDS, BECOMES INSOLVENT (IE THE END CLIENT).

IF MINIMUM REQUIREMENTS NOT MET, GOVERNMENT SCHEME COMES INTO OPERATION AS A “DEFAULT” MECHANISM.

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GOVERNMENT SCHEME FOR PAYMENT PROVIDES FOR :

MONTHLY INTERIM PAYMENT

DUE DATE” FOR INTERIM PAYMENTS 7 DAYS AFTER END OF RELEVANT MONTHLY PERIOD

OR MAKING OF CLAIM, WHICHEVER THE LATER.

FINAL DATE FOR INTERIM PAYMENT 17 DAYS FROM DUE DATE

NOTICE OF AMOUNT DUE NOT LATER THAN 5 DAYS AFTER DUE DATE

NOTICE OF INTENTION TO WITHHOLD PAYMENT NOT LATER THAN 7 DAYS BEFORE FINAL PAYMENT DATE

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ADJUDICATION UNDER THE ACT

STATUTORY RIGHT TO REFER “ANY DISPUTE” TO ADJUDICATION. ALL CONTRACTS MUST CONTAIN AN ADJUDICATION PROCEDURE WHICH COMPLIES WITH THE ACT.

BASIC REQUIREMENTS OF THE ACT :

EITHER PARTY CAN GIVE NOTICE OF ADJUDICATION “AT ANY TIME” REGARDING ANY DISPUTE OR DIFFERENCE ARISING UNDER THE CONTRACT.

CONTRACT MUST PROVIDE A TIMETABLE FOR APPOINTMENT OF ADJUDICATOR AND REFERRAL OF DISPUTE WITHIN 7 DAYS OF INITIAL NOTICE

ADJUDICATOR MUST REACH DECISION WITHIN 28 DAYS OF REFERRAL (UP TO 42 DAYS IF THE REFERRING PARTY AGREES)

PERIOD CAN BE EXTENDED ONLY IF PARTIES AGREE, OR ADJUDICATOR’S INSTIGATION WITH CONSENT OF REFERRING PARTY

ADJUDICATOR IS ENABLED TO TAKE THE INITIATIVE IN ASCERTAINING FACTS AND LAW

DECISION OF THE ADJUDICATOR MUST BE “BINDING UNTIL THE DISPUTE IS FINALLY DETERMINED BY LEGAL PROCEEDINGS, BY ARBITRATION .......OR BY AGREEMENT”.

THE PARTIES MAY AGREE TO ACCEPT THE ADJUDICATOR'S DECISION AS FINAL

IF MINIMUM REQUIREMENTS NOT MET, GOVERNMENT SCHEME COMES INTO OPERATION AS A “DEFAULT” MECHANISM.

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GOVERNMENT SCHEME FOR ADJUDICATION PROVIDES FOR :

WRITTEN NOTICE OF ADJUDICATION STATING :

Nature and description of dispute and parties involved

Details of where and when dispute has arisen

Nature of redress sought

Names and addresses of parties to contract

APPOINTMENT OF ADJUDICATOR - WITHIN 7 DAYS OF NOTICE

THE SAME 7 DAYS IN WHICH TO SUBMIT FULL DOCUMENTATION (“REFERRAL NOTICE”)

ORAL EVIDENCE LIMITED TO ONE REPRESENTATIVE - CAN BE A “LAWYER”

ADJUDICATOR’S DECISION WITHIN 28 DAYS FROM “REFERRAL NOTICE”

OR 42 DAYS WITH THE REFERRING PARTY’S PERMISSION

PAYMENT OF THE ADJUDICATOR’S FEES : PARTIES EQUALLY RESPONSIBLE IF NOT DETERMINED BY ADJUDICATOR

REASONS FOR ADJUDICATOR’S AWARD TO BE PROVIDED IF REQUESTED

DECISION BINDING PENDING FINAL DETERMINATION BY LEGAL PROCEEDINGS OR ARBITRATION, OR BY MUTUAL AGREEMENT IN SETTLEMENT.

PARTIES TO COMPLY WITH HIS DECISION “IMMEDIATELY”.

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Further comments on the Act

"Adjudication" is not to be confused with "arbitration".

Adjudication is intended to be quicker and less expensive. Therefore the parties must be prepared for a degree of "rough justice". The adjudicator has very wide powers. He can use his initiative and can request further documents from any party, meet and question them, visit site, appoint experts to help him if necessary (eg technical assessors, legal advisers etc), issue directions and timescales. He can adjudicate, with the consent of all parties, on “related disputes” under different contracts. He can award interest.

What kinds of dispute or difference?

Virtually all kinds of dispute or difference may be referred to the Adjudicator, provided they arise “under the contract”.

These would include : failure to issue notice of sums due or notice of withholding payment, value of interim payments, value of variations, extension of time, loss and expense, set off and contra charges, workmanship, whether or not an instruction is reasonable etc.

The parties' own costs.

Initial view was that each party must bear his own costs in submitting and presenting his case. However, a recent court case supported a “costs paid by loser” approach. This raises worrying questions as to “cost of big guns”.

Enforcement of the adjudicator’s decision

The adjudicator’s decision is intended to be binding pending final determination by legal proceedings or arbitration, or by mutual agreement in settlement. Whilst the act is not as strong as might be desired, several court cases have shown that the courts intend to support both the act and the adjudicator by enforcing awards.

Beneficial effect of an adjudication clause

It may well be that the mere presence of an adjudication resource will concentrate the minds of those on either side whose stance is less than reasonable -

And so enable the parties to go forward with providing the client’s end product - the completed project - on time and free of major end of job disputes!

Sub-sub-contractors

The Act applies equally to the sub-sub-subbie (eg the cable puller etc) even when the sub-subbie is “labour only”, and regardless of job value. So the subbie needs to make sure that he does not put himself in a vulnerable position. The sub-subbie is entitled to be treated in the same way as everybody else, and is quite likely to refer to Adjudication in the event of perceived injustice. This means that the subbie must take care to issue the appropriate notices of sums due for payment, and notices of withholding monies. These notices must be issued within the timescales stipulated in the sub-subbie conditions and/or in accordance with the government scheme. The days have gone when a subbie could just sit on a cabler’s account, on some vague pretext.

Mini claims

The days of leaving claims to the end of the job are over. Disputes must be “nipped in the bud”, by use of the procedures available under the Act. This will probably mean the submission of “mini claims” as the job proceeds. So records and notices must be maintained to a high standard, in readiness for production to the Adjudicator. The result should be better cash flow.

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DIRTY TRICKS, DODGES AND LOOPHOLES – BEWARE !!!!!!

DIRTY TRICKS AND DODGES	JR COMMENTS


Payment

Extended payment periods Many sub-contractors re stating long periods of 60 days from due date to final date. Some are stating 90 days.		Now that “pay when paid” is outlawed, contractors are imposing greatly lengthened payment periods., in order to retain their grip on money due to subbies, which has already been paid to them by the client. A payment period of 90 days means that a subbie will have been working for over 4 months before he sees any payment whatever. For many subbies, this could mean bankruptcy.

Set off notice Many contractors stating only one days notice of set off prior to final date for payment		Although government scheme states 7 days, the act does not prescribe a period. Clearly, one days notice of set off, with all its potential impact upon cash flow, is totally inadequate.