Clamp down
on tricks and dodges?
The DTI has brought out a consultation paper (running to nearly 120
pages) entitled “Improving payment practices in the construction industry”. This document, which
also deals with adjudication, sets out in copious detail the numerous matters
which have been considered and the resultant proposals for consultation.
The proposals are stated to be aimed at improving the ability of parties
to a construction contract to:
·
Reach agreement on what should be paid and when given the work done
under the contract or, where they cannot agree, to make an informed referral
to, or response at, adjudication.
·
Manage cash flow and enable completion of work on the project in the
event of problems such as defaulted payments, disputes or insolvencies
elsewhere in the supply chain; and,
·
Refer disputes to adjudication without
disincentives such as avoidance, frustration or unnecessary challenge.
The full document can be obtained by contacting the DTI’s construction
web site. The main proposals are
briefly summarised below, with the more important reforms highlighted in bold
italics.
1. Defining the content
of an adequate payment mechanism in Section 110(1) of the Construction Act.
2. Removing the
requirement to serve a Section 110(2) notice in the Construction Act
3. Providing an
application for payment in the legislation.
4. Redefining the content
of withholding notices under Section 111.
5. Restricting the
use of pay-when-certified clauses.
6. Introducing a
right to reimbursement for the costs of suspension and remobilisation and
providing additional time for remobilisation under Section 112 of the
Construction Act.
7. Making
contractual provisions on cross contract set-off ineffective.
8. Making
"pay-when-paid" clauses ineffective in cases of "upstream"
insolvency proceedings.
9. Allowing stage payments under the Scheme for Construction Contracts
to be made for materials in advance of their arrival on site
Key proposals
regarding Adjudication
10. Preventing the
use of "trustee stakeholder accounts" to suspend an adjudicator's
award pending litigation other than when the recipient is involved in insolvency
proceedings
11. Providing the
adjudicator with the power to rule on certain aspects of his own jurisdiction
and providing a right to payment in cases where the adjudicator stands down due
to lack of jurisdiction
12. Providing the
adjudicator with the right to overturn "final and conclusive"
decisions where these are of substance to interim payments only.
13. Extending the
adjudicator's immunity under the Construction Act to claims by third parties.
14. Applying
provisions on adjudicator independence from the Scheme for Construction
Contracts' to all adjudications in Section 108 of the Act
Improving adjudication in the construction
industry
Legislation is also planned for the parties
to an adjudication to bear their own legal
and other costs while the costs of the process (the adjudicators fees and
expenses and the costs of his appointment) are referred to the adjudicator to
be decided as part of his decision of the dispute.
However, once a dispute has been referred to an adjudicator, if both
parties also wish to refer the legal costs they incur in the process, the
adjudicator should also award these as part of his decision of the dispute.
Proposals submitted by Sir Michael Latham but not to form
part of the DTI consultation.
The DTI consultation paper lists various matters which, whilst emerging
from Sir Michael’s review, will not be part of the consultation. Amongst the reasons is where the position is already
covered by case law or other legislation.
The three principal areas of non-consultation are :
1. Issues
previously consulted on in "Improving Adjudication in the Construction
industry”.
2. Proposals to
legislate only to provide clarification of the existing law as established by
the courts
3. Proposals to legislate
to introduce measures for construction contracts affecting the framework of
other late payment or insolvency legislation relating to all industry sectors.
Also, the DTI will not be
consulting on:
· Amending the
meaning ‘of evidenced in writing’.
· Amending the
scope of the existing legislation.
Some tricks and dodges dealt with in the proposals include :
· “Pay when
certified”.
· “Pay when paid”,
· Cross set-off
between different sub-contracts.
· Stakeholder accounts,
which delay payment of adjudication awards,
· “Final and
conclusive” clauses, which prevent action by the adjudicator.
· “Referring party
pays all costs and fees” of adjudication, regardless of outcome.
Sub-contractors may not have got everything from this review that
they would wish. However, if these
proposals are implemented, many clients and main contractors will find it a lot more difficult to use their
bespoke terms as an instrument for “subbie bashing”!
(This article is based on the “Jack Russell” contract law column in
the “Electrical Times”).
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John Russell
Construction Contracts & Training Consultants (Established
1984)
Cheshire CW4 7DP Tel : 07770 986444
Email :
swsubbie@globalnet.co.uk Website:
www.jrconsultant.co.uk