Dodgy payment practices: Save us from ourselves

There seem to be dodgy practices in so many sectors at the moment: bankers and sub-prime finance; MPs and dodgy expense claims; News International and dubious journalists’ practices. But dodgy payment practices in the construction industry have been around perhaps even longer and are perhaps even more prevalent.

Each sector seems to have its own solution. In most instances, the sector itself has pressed for self-regulation - the Press Complaints Commission, the Advertising Standards Authority. When self-regulation has failed or because of the seriousness of the complaints further statutory regulation has been introduced. The legal profession, for example, has had an ombudsman since last October as an independent one-stop-shop for complaints against barristers and solicitors. The ombudsman has statutory powers to investigate malpractice and misconduct, to impose fines and so on.

In the construction industry, following Sir Michael Latham’s report, a different route was adopted. In proposals which were unique to the construction sector and revolutionary in terms of the development of English common law, the Construction Act 1996 attempted to improve payment practices in the construction industry by re-writing the industry’s contracts. Certain notice requirements had to be included in contracts; payment periods had to be defined; pay-when-paid clauses were outlawed and a new statutory adjudication procedure - which is still completely misunderstood by those outside the construction industry - was introduced.

Payment bad practice is driven by the quest for money - just as much as phone hacking is driven by the quest for headlines, increased circulation and money

Everyone rewrote their contracts, but did this legislation have any more impact on the culture of payment abuse in the construction industry than the Press Complaints Commission has had on the behaviour of the red tops?

Empirical evidence is obviously impossible to find. Impression suggests that the legislation has had some impact at the top end of the industry and at the top of the many tiers of the contractual chains on projects, but the culture of the industry has not really changed. Payment bad practice are driven by the quest for money - just as much as phone hacking is driven by the quest for headlines, increased circulation and money.

Presumably the subcontractors’ organisations do believe that the Construction Act has improved the culture otherwise they would not have lobbied so long and hard for the further changes contained in Part 8 of the Local Democracy, Economic Development and Construction Act 2009 which will take effect from 1 October 2011. The construction industry will have to rewrite its contracts again but will these changes exponentially improve the payment culture? I think not.

Whatever effect they may have, they will certainly have exhausted the government’s will to legislate to sort out the cultural problems in the construction industry. So if any further change is required, the industry will need to fall back on its own resources. Maybe we should be looking more carefully at a system of self-regulation? Of course any voluntary body would not have legal powers to investigate malpractice but presumably it could bring matters to the attention of the police in cases of criminal activities - and some of the practices complained of are potentially criminal offences.

A voluntary body would not have the power to levy fines and therefore hit those guilty of abuse in the industry where it hurts. But perhaps a system where significant abuse could be reported to a Construction Complaints Commission, supported by and with representatives from lead clients and contractors, might begin to change the culture?

The new Construction Complaints Commission could do worse than adopt as its code of practice something along the lines of the 2012 construction commitments produced by the 2012 task group under the auspices of chairman Peter Rogers; perhaps Peter could be persuaded to chair the new commission?

Ann Minogue is a partner at Ashurst