10 key points about the Construction Act changes
Alistair Kennedy, a solicitor in the construction team at Tods Murray, explains the key things to know about this month's changes to the Construct Act.
1. The Local Democracy, Economic Development and Construction Act 2009 covers both Scotland and England, and amends the Housing Grants, Construction and Redevelopment Act 1996. It came into force in England on 1 October 2011 and will come into force in Scotland on 1 November 2011.
2. Construction contracts now no longer need to be in writing to be covered by the 1996 Act. However, certain provisions (such as those relevant to adjudication) will still need to be in writing if the parties don't want to be subject to default provisions that are set out in the law.
3. Adjudicators have been given additional powers by the 2009 Act. They will now have greater leeway to correct errors in their decisions, though this only applies to clerical or typographical mistakes – it is not a licence to re-decide adjudications with the benefit of hindsight.
4. Clauses which seek to apportion an adjudicator's costs before the matter has been referred to adjudication are to be ineffective. They can only be effective if agreed in writing after the giving of notice of intention to refer the dispute, or if they provide in writing that the adjudicator can make the allocation himself.
5. Construction contractors were previously able to suspend performance of their obligations but were not entitled to recover their costs in respect of this. Now the position has changed and reasonable costs can be recovered. In the case of JCT and SBCC form contracts, this is done by way of an increase to the contract sum.
6. The payment provisions are where most change has occurred in the amended version of the Act. The central plank of this is the tightening of the outlawing of "pay when paid" clauses. The current relevant section of the 1996 Act requires a contract to provide an adequate mechanism for determining what payments become due under the contract, or when. The revised version specifies that, with some limited exceptions, this is not satisfied when the mechanism refers to the payment to become due conditionally on the performance of obligations under another contract (this is to cover pay when paid clauses) or a decision by any person as to whether obligations under another contract have been performed.
7. Formerly, interim payments could be specified in construction contracts as being final and conclusive, which would take them outside the remit of statutory adjudication. The 2009 Act attempts to remove this approach. The drafting of this particular provision in the 2009 Act is unclear – it provides that while a construction contract requires to provide an adequate mechanism for determining when payments become due under the contract, it is not competent to seek in the contract to specify that the due date for payment is to be determined by reference to "the giving to the person to whom the payment is due of a notice which relates to what payments are due under the contract". There is therefore likely to be some debate as to the interpretation of this provision.
8. There are set timescales in the 2009 Act as to when payments are to be made. A notice must be given not less than 5 days after the payment due date stating the sum the payer considers to be due (or have been due at the payment due date) and how it is calculated, if coming from the payer, or the same for the serving party if the serving party is not the payer. The serving party can therefore be the payee. A notice always has to be served, even if the sum is zero.
9. In the event that the building contract provides that one party should be the one to issue payment notices, and he fails to do so, then the other party can step in and issue a payment notice to the first party instead, and the final date for payment is extended by the same period as the number of days following the payment due date that the notice was given.
10. The payment specified by the notice is to be paid before the final date for payment, unless a notice is given prior to the prescribed period before that date stating the amount which the other party believes to be due. The prescribed period can be agreed between the two parties in the contract. If the prescribed period has elapsed, and the payer becomes insolvent, then if the contract specifies such then the sum due will no longer be due. If there is a referral to adjudication regarding the amount due, and the adjudicator decides that more should be due, then the extra amount is payable by the later of the date falling seven days from the decision or the final date for payment.
Alistair Kennedy is a solicitor in the construction team at Tods Murray.
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This article was published on 18/10/2011 (last updated on 18/10/2011).