GOVERNMENT REVIEW OF THE CONSTRUCTION ACT

In the March 2004 budget, the Chancellor announced a review into the workings of the Housing, Grants, Construction and Regeneration Act 1996, Part II, better known as the Construction Act. Since then, a review group chaired by Sir Michael Latham has looked into some of the chief areas of concern relating to abuse and evasion of the Act. Their report has now been issued to the DTI, who will be publishing a consultation document later this year.

The review is the work of two separate working groups, the members being drawn from various fields within the construction industry, one group dealing with problems relating to payment, the other concentrating on adjudication. The key points are summarised below.

Payment

The group makes five specific recommendations. In essence, they are as follows;

· Strengthening of suspension of works in cases of non payment.

· Limitation of cross contract set-off clauses.

· Provisions for payment by a third party where the original payer is insolvent.

· Removal of Section 110(2) of the Act and its requirements to provide a payment due notice and “due date” for payment.

· Clarification of the “adequate mechanism” requirements under Section 110(1) of the Act.

Unfortunately, because of the mixed nature of the group and the conflicting interests involved, there were numerous issues on which agreement could not be achieved and no recommendations are made. These are:

· Failure to issue a withholding notice under Section 111 of the Act, and to provide adequate detail of reasons for withholding.

· “Pay when paid” in cases of insolvency.

· “Pay when certified” under the main contract.

· Payment for off site works.

· Lengthening of payment periods.

· Statutory rights to seek security of payment.

Adjudication

The Task Group’s key conclusions regarding the Act and the Scheme (not always in the form of recommendations) are broadly as follows:

· Clarification of the law relating to what constitutes a contract “evidenced in writing”.

· An end to clauses requiring the referring party to pay both parties’ costs.

· Strengthening of existing statutory protection for adjudicators.

· Amendment to Section 108(1) of the Act to read “dispute under or arising out of the contract”, thereby clarifying the power of adjudicators to decide regarding damages for breach of contract.

· Strengthening of existing requirements of the Scheme regarding the independence of the adjudicator.

· Prohibiting of arrangements requiring sums awarded to be paid into a trustee stakeholder account.

· Clarification of timescale regarding 7 days for submission of referral notice.

· Clarification of adjudicator’s powers to act on more than one dispute under the same contract.

· Strengthening of adjudicator’s powers to award interest.

· Requirement for adjudicator always to give reasons unless parties agree otherwise.

· Amendments to the Scheme clauses 23 and 24 relating to enforcement of decision, to bring into line with current practice (ie summary judgment).

· Clarification of protection of adjudicator in cases of negligence.

· Express rights to be included to enable responding party to serve a response to the referral notice.

· New provision for correction of errors in the adjudicator’s decision, within 7 days of issue.

· Express requirement for adjudicator to copy any legal or technical advice to the parties.

As in the case of payment, the Task Group were unable to reach agreement on various matters, which are summarised below:

· Removing the present exclusion in relation to PFI contracts.

· Removing the present exclusion regarding residential occupiers.

· Clarification regarding what contracts should be within the scope of the Act (eg wholly in writing, wholly or partly in writing, or wholly oral contracts).

· Removing the present exclusion regarding the process plant industry.

· Whether or not the adjudicator should have the express power to award costs.

· Implementation of a single adjudication procedure in all contracts.

· Adjudicator to be given express powers to decide on his own adjudication.

· Rights of parties to be represented at a hearing by more than one person.

· Amendment or removal of paragraph 20(a) of the Scheme , which currently restricts the adjudicator from opening up decisions or certificates which are described in the contract as “final and conclusive”.

· Whether or not an adjudicator should be called as witness in enforcement procedures.

Conclusion

There are some much needed reforms in the reports.. However, it looks as if we shall just have to go on living with problems such as “pay when certified”, failure to issue a withholding certificate, lengthened payment periods, use of bespoke adjudication procedures, uncertainty as to what constitutes a contract evidenced in writing, and inclusion of “final and conclusive” clauses.

John Russell

November 2004

(Based on an article published in the November issue of “Electrical Times”).

John Russell

Contracts and Training Consultant

Cheshire CW4 7DP

Tel: 07770 986444

Email: swsubbie@globalnet.co.uk

For more information on the Construction Act and other contractual matters, refer to my website at : Home

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