OPINION: REGULATIONS
ACT SMART
After much debate the Construction Act 2009 finally came into force on 1 October 2011. Hywel Davies considers the implications
The Local Democracy, Economic Development and Construction
Act – or the Construction Act 2009 – became law on 12 November 2009. Part 8 of the Construction Act amends the Housing Grants, Construction and Regeneration Act 1996. After extensive and protracted consultations between government and industry, it finally came into effect on 1 October 2011. The Act applies to all construction contracts that are entered into on or after this date, making significant changes to the current law as it relates to payment and adjudication. The aim is to improve payment practices in the construction industry. It is therefore imperative for those engaged in contracts that are covered by the legislation to be aware of the changes contained in the Act, and how they will affect their business. The main changes relate to adjudication, liability for costs, payment procedures and suspension rights. The changes and likely implications in each area are described below: Adjudication: The major change
relating to adjudication is the widening of the scope of the Construction Act to include oral contracts, by repealing section 107 of the 1996 Act. Parties to an oral contract agreed after 1 October have the right to refer any dispute to adjudication. This removes the grounds to challenge the jurisdiction of the adjudicator on the grounds that the contract is not in writing, or evidenced in writing, and therefore not within the scope of section 107. Previously, due to section 107, courts
have ruled that all the trivial details of a contract must be in writing for the right to adjudication to exist. While this will now be a thing of the past, and oral details to written contracts are within the scope of the new Act, it may create
20 CIBSE Journal October 2011
disputes about whether an oral contract exists at all – and, if it does, what terms were agreed by the parties, and by whom. Writing it down may still be the wisest course, but the change means that not writing it all down in every detail will no longer justify a challenge to the use of adjudication. In future, these changes may well
lead to an increasing number of adjudications. Liability for costs: The new Act attempts to outlaw contractors requiring the referring party to bear all the costs associated with an adjudication – so called ‘Tolent clauses’. While the intent to remove this practice is clear, some legal commentators have suggested that the wording of the Act may not be sufficiently robust to prevent the practice. Caution may be required by sub contractors on this issue. Payment procedures: The changes
focus on the mechanics of the ‘payment notice’, setting out the amount to be paid and the basis of the calculation. Currently there is no sanction if the paying party does not issue a payment notice. The new Act means that if the party making the payment (the ‘payer’) is also due to issue a payment notice, they must do so within five days of the due date, or else the application for payment by the payee – setting out the sum due and basis of the calculation – serves as the payment notice by default. The payer is then obliged to pay the amount specified in the application by the final date for payment. If they dispute the sum, the payee
The Act applies to all construction contracts entered into after 1 October 2011
may issue a ‘pay less notice’ before the final payment date, specifying the amount considered due on the date the ‘pay less notice’ is served – effectively giving the payer a second opportunity to value the works. Previously, only the amount to be withheld under the contract could be notified. Suspension rights: The new Act
It is imperative for those engaged in contracts that are covered by the legislation to be aware of the changes contained in the Construction Act 2009
gives additional rights to suspend work for non-payment, allowing a contractor to suspend part or all of the obligations under the contract, and to claim the payment of costs and expenses ‘reasonably incurred’ as a result of exercising the right to suspend, or part suspend, work. The Act also allows contractors to claim extension of time ‘in consequence’ of exercising the right to suspend. After all the consultation, deliberation and discussion, we shall now find out how the new Construction Act really works. The odds must be on more adjudication, with some test cases going to court to establish the true extent of some of the changes.
l Hywel Davies is technical director of CIBSE
www.cibsejournal.com
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