8 September 2011 | Rupert Choat
The Construction Act will be
undergoing revisions this October
– but will this help or hinder an
already beleaguered industry?
On 1 October, changes to the
Construction Act will come into force in England and Wales. In Scotland, they will follow on 1 November. It is unclear when changes to Northern Ireland’s regime will occur.
All ‘construction contracts’ concluded after the changes come into force will be affected. While standard form contracts are being updated, no doubt some parties will conclude contracts after 1 October that fail to provide for payments and adjudication as the new Act requires. Such contracts will have default terms implied into them from an amended scheme.
The Act will still not apply to supply-only contracts. However, standard forms that comply with the Act will incorporate its rules into many contracts that the Act would not otherwise cover.
The extension of the Act to cover contracts not wholly in writing will most affect 100 per cent oral contracts and ‘simple’ contracts that do not provide for the Act’s requirements, like many ‘letter of intent’ contracts. It won’t replace the need for there to be a binding contract.
The greatest changes are to the Act’s payment regime. All construction contracts will be required to trigger payments by a notice given by the payer or the payee. If the payer fails to provide a payment notice, the payee’s preceding payment application may qualify as one or he/she may issue their own payment notice.
Whether payment is triggered by or for a payer’s or a payee’s payment notice, the payer may give notice that he/she will pay less than the sum stated in the payment notice (a payless notice). If the payer fails to give a valid payless notice he/she must pay the sum stated in the payment notice by the final date for payment without any deduction. If he/she does not, the payee can go to court for summary judgment (if there is no arbitration agreement) or first obtain an adjudicator’s decision requiring payment. Also, or instead, the payee can on seven days’ notice suspend all or part of his/her work, pending payment, under newly beefed up rules.
Payment and payless notices must state the ‘basis’ on which the notified sum is calculated. It is uncertain what this requires pending judicial clarification. The Act’s changes were supposed to reduce the administrative burden imposed by the notice regime. One authority suggests that more detail is required than the existing requirement of stating the ‘ground’ for withholding. If so, payers may find it particularly burdensome providing valid payment and payless notices. There is the prospect of parties arguing about whether notices are invalid for failing to state the ‘basis’ on which the notified sum was calculated.
There is little evidence that the original Act’s aim of improving cash flow was met. The changes are unlikely to help or justify the cost to the construction industry of overhauling all of its standard forms
and associated payment practices, at an already difficult time.
* Rupert Choat is the head of construction disputes at CMS Cameron McKenna
