[ Spotlight: Construction Act ]
Take notice! F
With amendments to the Construction Act coming into force at the beginning of October, contractors need to be aware of the changes and their implications. Ken Tracey outlines the key points
ollowing a storm of publicity, the new amendments to the Local Democracy, Economic Development and Construction Act 2009 (Construction Act) came into force on 1 October. When new contracts go live,
the Act will impact on specialists. Attention must therefore be given to the new rules straight away to maximise the advantages and avoid the pitfalls.
New procedures Everyone involved in commercial management must be adept at implementing the new procedures. The two Acts – 1996 and 2009 – will run in parallel until the old projects currently agreed tail off. Individuals involved with both sets of legislation must apply the correct procedures job-by-job. The cumbersome payment mechanism involves ‘payment notices’ and ‘pay less notices’. New contracts should defi ne whether the contractor or the subcontractor is responsible for issuing the payment notice. On new contracts, specialists must establish this immediately and monitor the receipt of payment notices from main contractors and the issue of payment notices by their own organisation. Ignoring or delaying this procedure will affect payment. ■ If the payment notice is the obligation of the contractor, then the subcontractor must check that it is received by him within five days of the due date. If not, the subcontractor must immediately issue his own payment notice back to the contractor. This is crucial to payment, as the period in days between the payment notice date and the issue of the subcontractor’s payment notice is added to and extends the ‘fi nal date for payment’. ■ If it is the subcontractor’s obligation to issue the payment notice to the contractor, then he must do so no more than fi ve days beyond the due date. Failure to do so could result in non-payment. ■ Contractors may try to ‘time bar’ late payment notices from subcontractors by stating that they cannot be issued until the next valuation date, thereby delaying payment. ■ Regardless of which option applies, the contractor may issue a pay less notice within an agreed period prior to the fi nal date for payment. This can change the sum previously notifi ed as due by abatement of the subcontractor’s application, and/or by any set off applied by the contractor.
■ Specialists must adopt these procedures downstream with their own sub-subcontractors.
Both payment notices and pay less notices, upstream
and downstream, must now contain the basis of the calculation that establishes the sum due. The deduction of previous payments, discounts, retention and so on, must be shown and, in the event that the resulting sum due is zero, then the notice must still be issued. Specialists’ own terms and conditions must not involve
‘pay when certifi ed’ provisions. ‘Pay when certifi ed’ clauses are now ineffective. This has been achieved by prohibiting payment mechanisms that rely on performance on a separate contract. There is a further advantage that relates to the fi nal
release of retention. Retention releases to subcontractors must be free from the need to obtain the Certifi cate of Making Good on the main contract. This will also hamper cross contract set off which applies to two contracts.
React quickly If payment is not received by the fi nal date for payment, specialists must react quickly, and issue a ‘notice of suspension’ due to non-payment. This useful tool has been reinforced by the provision for the non-payer to be liable for direct loss and expense incurred by the suspending party. This would include demobilisation and mobilisation costs, and is a better deterrent to late payment. The appropriate notices of delay and claim for direct loss and expense must be issued in accordance with the contract. There has been some debate about the effectiveness
About the author
Ken Tracey Ken Tracey is the ECA’s head of the Commercial, Contracts and Legal Department.
of the new provision to make contract clauses ineffective that require one party to pay the other’s adjudicator’s fees and expenses (Tolent). Specialists are advised to take this provision as read, and object to the inclusion of such clauses until such time as it is tested in court. It is advisable to include a standard term in subcontracts: ‘In the event that a dispute arising under any contract between (specialist) and (client) is referred to adjudication, no agreement will be made as to the allocation of the cost of adjudication incurred by either or both parties, unless such agreement is expressly made in writing after the notice of adjudication has been issued.’ Immediate attention to these points will help specialists
to benefi t from the new Act and avoid the consequences of default.
■ There is extensive guidance for members on the ECA website at
www.eca.co.uk under Downloads/ Legislation/Construction Act/Amendments to the Construction Act.
November 2011 ECA Today 49
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