Improving an Old Friend

By the time the Local Democracy, Economic Development and Construction Act 2009 (“Construction Act 2009”) comes into force on 1 October 2011, 4,901 days will have passed from the implementation of its forerunner, the Housing Grants, Construction and Regeneration Act 1996 (“Construction Act 1996”)  which was implemented on 1 May 1998. That’s a period of some 13 and a half years during which we have witnessed the construction industry being transformed by a brilliant piece of legislation - my opinion, I grant you, but one that is shared by many.

Before we jump in and look at the reforms being ushered in, let’s just remind ourselves why the Construction Act 1996 was enacted in the first place. It was and remains all about providing parties statutory rights to rapid dispute resolution (through adjudication), prompt payment and the ability to suspend work where a relevant construction contract fails to address these fundamental issues.

Parliament has seen it right and proper to introduce the Construction Act 2009, not to replace the original piece of legislation but simply to plugs gaps in the original Act, stamp out abuses and to clarify and widen the scope of the Construction Act 1996. The new piece of legislation is very much a facelift to an old friend rather than the birth of a new entity. So, what are the changes being brought in by this facelift?

Adjudication – Contracts in writing, part writing and entirely oral  

The scope of adjudication has now been widened to encompass contracts that are formed orally and or only partly in writing. So, cleverly constructed arguments about whether a contract is or is not covered by the scope of the Act will be confined to the waste bin. This should, on the face of it, save the parties lots of time and money. However, on a note of caution, the appointed Adjudicator will have to satisfy himself that there is a contract in existence before he may proceed with the adjudication. Interestingly, if the contract does not set out adjudication rules in writing which are compliant with Section 108 of the Construction Act 1996, the new Scheme for Construction Contracts – which is yet to be drafted – will apply.  No doubt all this will provide fertile ground for future conflict and argument which will keep the lawyers busy.

Adjudicator’s Slips

Adjudicators are now given the right to correct “clerical or typographical errors arising by accident or omission”.

Adjudication Costs  

The so-called “Tolent” clauses which dictate that a Referring Party will meet all the costs of the Responding Party and the fees and expenses of the Adjudicator are outlawed by the Construction Act 2009.  The parties are still permitted to come to such an agreement but can only do so once the adjudication is under way. This provision should ensure that a party is not denied access to adjudication on the grounds that it is unable to meet the costs of all the parties.

Payment – Abolition of Pay when Certified

The Construction Act 2009 clarifies that “pay when paid” and “paid when certified” clauses are not adequate mechanisms for determining what and when payments are due.    

Payment – Notices

Perhaps the biggest area of change provided by the Construction Act 2009 is the now mandatory requirement for the provision of a payment notice which may be issued by the “payer” (the party making the payment), “a specified person” (a third party) or “payee” (the party receiving payment) even if the amount of the payment is to be nil. The payment notice must set out the sum due and how it has been calculated.

Once a sum is notified it must be paid without deduction unless the “payer” or “a specified person” issues its “pay less notice” which replaces the old Section 111 withholding notice.

Importantly, if a “payer” or “a specified person” neglects to issue a payment notice and the “payee” issues its payment notice, this amount will become due and payable unless the “payer” or “a specified person” remembers to issue a “pay less notice” which must clarify the basis on which this lesser amount is said to be due.

What this means in practice is that it will no longer be possible to argue that an amount which is either certified or applied for is not the amount due under the contract and it will no longer be possible to issue combined payment and withholding notices.

Suspension – Part or All of the Works

The Construction Act 2009 now makes clear that in the event of non-payment of a notified sum, a Contractor or Sub-Contractor, as the case may be, may suspend part or all of its obligations until payment is received and further that the Contractor or Sub-Contractor is entitled to reimbursement of its reasonable costs incurred in exercising the right of partial or total suspension. 

It will be interesting to see how the standard forms of contract will be updated in anticipation of these changes and it will be particularly interesting to see how the new payment regime brought in by the Construction Act 2009 will work in practice.

Peter Vinden

Peter is an experienced professional in the construction industry with particular expertise in quantity surveying and the commercial management of contracting organisations.