Does the Construction Act really work? | Features

What the act did (and didn’t) say	And how it has been interpreted
compiled by Henry Sherman, partner of CMS Cameron McKenna
Adjudication A party to a contract must be able to give notice of its intention to refer a dispute to adjudication at any time, under section 108.	An adjudicator’s decision is enforceable only if it is clear that what is decided falls within the scope of the referral notice that sets the agenda (FW Cook vs Shimizu). Subject to this, the notice can be as broad as the claimant wishes, as long as it can present the contents as “a dispute”. The right to adjudicate does not end when the contract ends (A&D vs Pagehurst).
The contract must provide a timetable for referring a dispute to an adjudicator within seven days of the notice. The adjudicator then has 28 days to reach a decision. This period can be extended by up to 14 days only if both parties agree, or at the adjudicator’s instigation – although the adjudicator needs the consent of the referring party.	Not contentious.
The adjudicator’s decision is binding until the dispute is determined by legal proceedings or arbitration, although the parties can agree to accept the adjudicator’s decision as final. This was challenged but the courts had confirmed that ...	An adjudicator’s decision can be immediately enforced as it stands, and does not have to be confirmed by litigation or arbitration (Macob vs Morrison)
If a contract does not comply with the act, the government’s Scheme for Construction Contracts automatically applies.	Yes, although the scheme can be amended, provided the amendments do not result in the contract failing to comply with the act. For instance, the scheme includes lots of detail, not all of which is required by the act, and this can be amended.
The act left open how impartial the adjudicator was required to be.	The Macob ruling made it clear that the adjudicator controls the procedure and need not be even-handed, or give both sides an equal right to be heard. However, from October, this power may be affected by the new Human Rights Act.
The act didn’t say … what happens if the adjudicator makes a mistake, even a simple arithmetical error in calculating an award.	As long as an adjudicator has jurisdiction, his decision will be enforced even if it is wrong (Bouygues vs Dahl-Jensen), and may be enforced even if there is a risk that the claimant may not be able to repay the award if the decision is later overturned (Herschel vs Breen).
The act didn’t say … whether an adjudicator could correct his or her own error after a decision had been made.	If he or she does so promptly, an adjudicator has the power to correct minor or clerical errors in the decision (Bloor vs Bowmer & Kirkland) – and the corrected decision will be enforced.
The act didn’t say … whether a claim could ever be resubmitted to adjudication.	Once an adjudicator has made a decision, the same claim cannot be referred to a different adjudicator. In practice, claims could overlap – for example, when a claim for payment under an interim certificate becomes part of the claim for a final account (Sherwood vs Mackenzie and VHE vs RBSTB Trust Company). The second adjudicator’s remit may be uncertain.
The act does not deal with the parties’ costs.	An adjudicator can award costs if the parties have expressly (or by implication) agreed to this.
The act didn’t say … what happens when a project involves construction and non-construction contracts.	One contract in a chain may be within the act, even if the others are not. So, a subcontractor may be able to adjudicate but not the main contractor (Palmers vs ABB Power).
The act does not deal with whether an adjudication could be stopped by injunction.	An adjudication cannot usually be halted by injunction (Workplace Technologies vs E Squared).
The act didn’t say … whether an adjudicator has the right to consider set-off outside a notice to withhold payment.	An adjudicator has no right to consider set-offs, other than those included in a notice to withhold payment that is validly served under the act (VHE vs RBSTB Trust Company).
Payment Pay when paid Pay-when-paid clauses are banned under section 113, unless the third party – normally the client – is insolvent.	Rudi Klein of the Specialist Engineering Contractors Group says loose drafting has allowed main contractors to continue the practice through “pay-when-certified” clauses. The Construction Confederation would like clarification that “pay when certified” is permitted.
Statutory right to suspend work Any party has the right to suspend work if they have not been paid by the final date for payment, and a notice to withhold payment has not been given. Section 112 says the party must give seven days’ notice of intention to suspend.	Very few, if any, subcontractors have carried out a threat to suspend work. However, Klein says their rights have been diluted because main contractors are extending the notice periods specialists need to give from seven days to 14 and higher.
Payment notices The payer must issue a notice – within five days of the due date – identifying what will be paid, what the payment relates to, and on what basis it has been calculated (under section 110(2)).	Although contractors have generally inserted this clause in contracts, specialists complain that they are not issuing the notices, or are providing inadequate information about what the payments are for. “Unfortunately,” says Klein, “there is no sanction for not doing this.”
Payment dates Contracts must provide a final date by which each interim payment must be made. The scheme provides for a period of 17 days from the date that payment becomes due.	Specialists complain that many contracts specify a 30-day period and that this often does not start from the due date, but from when the contractor approves the application for payment. Main contractors argue that the notice clause should be deleted because it is largely ignored.
Withholding money Parties that intend to withhold payment must give notice (within a period specified within the contract) and reasons for their actions. If they don’t, says section 111, the scheme says the notice period must be seven days.	Against a backdrop of generally lengthening payment periods, specialists complain that main contractors are issuing on the eve of the final due date, introducing even more delays into the process.