We’ve made great strides against payment abuse over the years but further changes to the Construction Act are needed

Rudi Klein

As an inveterate campaigner against payment abuse, there are certain things which still make me boil over with frustration.

Apparently the Construction Leadership Council (CLC) – a government-appointed body – has decided to re-launch the Supply Chain Payment Charter. This was originally launched by the business department on 22 April 2013 and, to date, has two signatures.

Why my frustration? To believe that a charter – without more – will dislodge an embedded mindset of payment abuse and manipulation is, at best, the height of naivety and at worst, deliberate avoidance of meaningful action. Over nine years ago the (then) Office of Government Commerce issued a payment charter for public sector projects. Three years later it was realised that it had not made one iota of difference. It was abandoned.

To believe that a charter will dislodge an embedded mindset of payment abuse and manipulation is, at best, the height of naivety

Government clients became obliged to use project bank accounts (PBAs) unless there were compelling reasons not to do so. PBAs enable all project participants to be paid within the same time frame – usually far less than 30 days. To date nobody has come up with a more effective method for achieving regular and secure payments. This is why the Northern Ireland Executive has made PBAs mandatory on all projects over £2m as from 1 January 2016.

As it happens the CLC will also be overseeing a review of the impact of the amendments on the Construction Act. I hope that the review will not just be limited to consideration of the amendments. A little bit of surgery needs to be carried out on a couple of the provisions in the original act.

The wording of the process plant exclusion is confusing and illogical. In Severfield (UK) Ltd vs Duro Felguera UK Ltd (2015) Mr Justice Coulson referred to it as “a muddle”. It’s time for this exclusion to go.

It’s also time for the pay when paid exception to go. This wholly unfair provision enables payments to be withheld in the event of an upstream insolvency. In William Hare vs Shepherd Construction (2010) the Court of Appeal didn’t dissent from the view of the first instance judge that such clauses are challengeable as an unfair exclusion clause under the Unfair Contract Terms Act 1977.

As to reviewing the impact of the amendments, it must be said that the statutory payment notice procedure has achieved its aim of crystallising a debt at the final date for payment. But there is scope for improvement. The procedure can be simplified by having the payee issue an application or notice and the payer, if it so wishes, issuing a pay less notice. This approach has been adopted in other jurisdictions – the latest being the Republic of Ireland – which have “cloned” the Construction Act.

At present many businesses having small amounts in dispute have nowhere to go. Besides the legal costs involved, court fees are now horrendous

While referring to pay less notices we should incorporate the provisions of the Scheme into the primary legislation. Under the Scheme pay less notices have to be issued seven days before the final date for payment; in most contracts they are issued a day prior to the final date. This makes it extremely difficult for firms to manage their cashflow as they will not know until the last minute whether their expected payment will be dramatically reduced.

Finally a thought about adjudication. I have a lot of sympathy for my friend Tony Bingham’s concern about the cost of adjudication (Building, 11 March). I would like to see fixed-fee adjudications conducted online where the amounts in dispute are on the small side. At present many businesses having small amounts in dispute (such as outstanding retentions) have nowhere to go. Besides the legal costs involved, court fees are now horrendous. Moreover adjudication would now be too costly for dealing with small claims (and even for large claims). If we have an opportunity to revise the Construction Act we should use it to facilitate such change.

This would involve having a statutory provision giving a claimant the option to avail itself of an online fixed-fee adjudication where the sum in dispute is less than, say, £50,000.

Professor Rudi Klein is a barrister and chief executive of the Specialist Engineering Contractors’ Group

Building is pleased to report that Rudi Klein, who has been a Building legal columnist for almost 25 years, is the latest recipient of the Clare Edwards Award for his contribution to the development of construction law. The Award was made by the Technology and Construction Court Solicitors’ Association