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Changes to the Construction Act

by Roland Finch
NBS Technical Author

In July 2008, the Department of Business, Enterprise and Regulatory Reform (BERR) issued a draft Bill to amend Part 2 of the Housing Grants, Construction and Regeneration Act 1996 (“the Construction Act”). This is the result of a lengthy period of consultation with Industry and other interested parties.

BERR has declared its intention to include the changes as part of the Community Empowerment, Housing and Economic Regeneration Bill, during the next Parliamentary cycle.

According to the Government’s impact assessment:

• Improvements to the adjudication framework should save the construction industry an estimated £1 million per annum in aggregate or £600 on average per adjudication (3% of the total cost of the adjudication)
• Amendments to the “payment notice” requirements in the legislation should save the construction industry approximately £5.8 million in administration costs per annum, for example by removing the requirement that payment notices should be served where the contract already provides for notices from third parties i.e. payment certificates
• Improvements to the payment framework to ensure contracts create clear and timely entitlements to interim payment should save an estimated 1% – 1.5% on the average project – reflected across the construction sector in England and Wales, this represents £1 – 1.5 billion.

The Bill, which extends to England, Wales and Scotland, includes a number of changes from the current regime.

One of the main topics is the relaxation of the requirement for construction contracts to be in writing in order for the Act to apply, as contained in Section 107 of the 1996 Act. The intention now is that contracts which are wholly or partly oral can be dealt with, although they must still be “evidenced in writing” as set out in Section 108.

In practice, this should mean that more disputes may be resolved by adjudication than is possible at present.

Other changes include:

Payments:

• Payment notice requirements are to be simplified, including allowing withholding notices to be included in the initial notice which gives details of the sum which is proposed to be paid
• A ban on "pay when certified" clauses
• Prevention of any agreements to the effect that interim or stage payment decisions are conclusive. The idea is to ensure that all disputes about interim or stage payments can be referred to adjudication.

Costs of adjudication:

• No provision in the contract concerning the allocation of costs of the adjudication will be effective unless it is made in writing after the appointment of the adjudicator
• If the contract provides for payment of costs (other than the fees and expenses of the adjudicator) by one party, the adjudicator may determine that such provision is unreasonable and may disallow certain costs on that basis
• Parties can be made jointly and severally liable for the adjudicator’s reasonable fees and expenses, such amount to be determined by the adjudicator.

Remedies:

• There will be enhancements to the right to suspend performance, allowing the suspending party to recover more of its costs
• A provision to safeguard the right of a paying party to withhold monies if the payee becomes insolvent even if no valid withholding notice may have been given. This is in response to the House of Lords decision in Melville Dundas Ltd (in receivership) v George Wimpey UK Ltd & Others
•  There is also a rule, effective only in Scotland, which will permit adjudicators to correct a clerical or typographical error in their decision even after it has been issued.

BERR has also in parallel published a detailed Explanatory Note, which is available on their website (www.berr.gov.uk).

Related NBS information:

Articles:

• Dispute resolution

Selected links:

• Adjudication

Written August 2008

 

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