Changes to the Construction Act

Local Democracy, Economic Development and Construction Act 2009 comes into force on 1 October 2011
Act amends the existing Housing Grants, Construction and Regeneration Act 1996 known as the Construction Act
improve payment practices within the UK construction industry
Scheme for Construction Contracts (England and Wales) Regulations 1998 is the secondary legislation which supplements the construction Act
1. Scheme has also been amended
All contracts entered into after 1 October will be governed by the amended Act
3 main changes
1. Unwritten contracts
  1. provisions of the Construction Act have in the past applied only to construction contracts entered into “in writing”
  2. 1 October 2011 this restriction will no longer apply.
  3. any construction contract made orally or part-orally, as well as in writing, will be covered by the Construction Act.
2. Adjudication procedures
  1. result of the changes, disputes arising from oral or part-oral contracts may be referred to adjudication
  2. Parties should also take care to ensure that pre-contract negotiations are marked as being “subject to contract”
  3. Adjudication agreement must be “in writing”
    1. if there is a written contract
      1. must satisfy each of the nine requirements for adjudication
        timetable to secure adjudicator and refer the dispute within 7 days of such notice;
        adjudicator to reach a decision within 28 days of referral (or such longer period as is agreed by the parties)
        adjudicator to extend the period of 28 days by up to 14 days with the consent of the referring party
        Impose a duty on the adjudicator to act impartially;
        adjudicator to take the initiative in ascertaining the facts and the law
        decision of the adjudicator is binding until the dispute is finally determined by legal proceedings or arbitration or by agreement
        adjudicator is not liable for anything done or omitted in his role as adjudicator unless the act or omission is in bad faith
        adjudicator to correct his decision so as to remove a clerical or typographical error caused by accident or omission
        Under the revised Scheme, the adjudicator must correct the decision within 5 days of delivery of the decision to the parties.
        if each and every one of these requirements are not agreed in writing
        all of Part 1 of the Construction Scheme will apply by default.
    2. Enable a party to give notice at any time of its intention to refer a dispute to adjudication;
  4. Timetable
    1. Scheme now clarifies
      1. 28 day period for adjudication runs from the date the adjudicator receives the referral notice and not the date of dispatch by the referring part
  5. Costs
    1. clause allocating parties’ liability for the costs of adjudication will be ineffective subject to two exceptions
      1. Parties may give the adjudicator power to determine who pays his fees and expenses
      2. Parties may agree the allocation of adjudication costs but only after the notice of intention to refer has been issued
    2. clause for payee or referring party to pay all of the payer’s or responding party’s legal costs + adjudicator’s fees and expenses = outlaw
3. Payment terms
  1. payment provisions within the Construction Act have been rewritten
  2. Adequate Payment mechanism
    1. Act requires every construction contract to contain an adequate mechanism for determining when payments become due under the contract
    2. from 1/10/11 any contract which determines date for payment by reference to a notice given to the payee by the payer is not an “adequate mechanism'
  3. Pay-when-certified and pay-when-paid clauses
    1. prohibit “pay when certified” clauses pursuant to which payment is due only upon certification of payment under another contract
    2. only exception is where the clause is contained in a contract providing for construction work by others as is the case with Man Contracting
    3. A “pay when paid” is clause is permitted were a payer is not paid due to another payer’s insolvency (known as “upstream insolvency”)
  4. Payment Notices
    1. new system of payment notices has been introduced
    2. payer must send notice to the payee of the sum considered due at the payment due date and the basis on which that sum is calculated
    3. notice must be given even if the sum due is zero
    4. if the payer does not send notice within 5 days of the due date
      1. payee to send its own payment notice or default payment notice
        if the payee has submitted an application for payment before the date on which the payer’s notice was required
        no requirement for a second notice.
        application for interim payment will act as the payee’s notice

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