Construction Bill

The Construction Bill

In the 2004 Budget, a review was announced to consider two pieces of legislation: the Housing Grants Construction and Regeneration Act 1996 and the Scheme for Construction Contracts (England and Wales) Regulations 1998. Sir Michael Latham was asked to examine concerns within the industry about unreasonable delays in payment and to review the adjudication provisions of the former Act.

The aims of the new Bill are set out as:

1.     Removing the limitation to contracts which are only in writing;

2.     Making agreements regarding adjudication costs ineffective when made prior to their appointment;

3.     Dealing with payments which are dependant upon obligations in another contract;

4.     Amending the process for payment notices;

5.     Introducing (in most cases) a statutory requirement to pay sums in the notice;

6.     Amends provisions relating to a contractor’s right to stop working when the contractor has not been paid.

Polling within the industry revealed majorities supporting all these measures – though the different measures won varying levels of support. 90% supported removing the requirement that the Act only apply to contracts in writing while 56% supported the requirement for payment notices (discussed below) should be served.

1.    Clause 135 of the new Bill allows that terms agreed orally may be considered.

2.     Clause 137 states that contractual agreements on adjudication costs are invalid and ineffective except where it was made after one party has provided the other with notice of the adjudication. This agreement on costs must be in writing.

3.     Clause 138 largely prohibits using one contract to state what and when payments are due. The 1996 Act requires that an ‘adequate mechanism’ for determining this exist, but this clause will only allow this to be in a separate contract in cases where “payments in a superior contract are reliant on the work carried out in a sub-contract”.

4.     Clause 139 requires that a construction contract contain a provision that either the payer or payee provide a ‘payment notice’ on each date a payment is due. This notice must include the sum payable, date due and the method of calculation. This notice is required even in cases where the sum is zero.

5.     Clause 140 requires that the sum stated in the payment notice be paid and requires that notice be given by the payer of any intention to pay less than the notified sum.

6.     Clause 141 aims to strengthen the right of a contractor to suspend performance in the face of non-payment. The contractor is permitted to stop all or part of their work and the party in default must cover all the reasonable costs a contractor bears when exercising this right to suspend their work.

The government estimates that the savings to the industry may be substantial:

ø  £1 million per annum from the changes to the adjudication framework;

ø  £5.8 million per annum in administration cost savings from the payment notice changes; and

ø  £1 billion to £1.5 billion from changes aimed at ensuring entitlement to interim payment.