Michael Latham offers a behind-the-scenes guide to the review of the Construction Act – and ponders whether it will make a real difference to payment terms
In the next few months we should see further progress on the government’s review of the 1996 Construction Act. A summary of the industry’s and legal profession’s requests to the DTI construction paper may appear some time next month and a further set of government proposals in the New Year. Whether those proposals will be firm statements of government policy or another round of consultations remains to be seen.
As I was directly involved in last year’s review, it is worthwhile recalling the background. Not everybody wanted a review. It arose because the Specialist Engineering Contractors Group and the National Specialist Contractors Council lobbied Gordon Brown and other ministers directly in 2003 and early 2004 to set up a review of the Construction Act’s payment terms. Similarly, the Construction Industry Council, on behalf of professionals, wanted a review of the adjudication procedures. Brown decided to have a review, and announced it in his 2004 Budget. It was given to the DTI to run, and it made sense to combine the investigations into payment and adjudication. However, that was not popular with all sections of the industry. The Construction Confederation supported the review of adjudication but saw no need for an enquiry into payment procedures.
This review was not like Constructing the Team, which was commissioned jointly by the industry and the government in 1993. This was a government review only. I was asked if I would chair it, and I replied that I could do so only if the procedure was totally different to 1993. I had been commissioned 12 years ago to undertake that review alone, and to write the report personally, with one year to do the job on the basis of two days a week. I could not do that again, with my many other responsibilities. I was prepared to chair a panel drawn from the industry, clients and the legal profession, provided that the detailed proposals came from two working parties, and that the DTI provided all the administrative back-up. That was agreed, and the two expert working parties were chaired by Graham Watts, chief executive of the CIC, and Richard Haryott, vice president of the Institution of Civil Engineers. The panel itself only met three times. The real work came from Watts, Haryott and their working parties.
Their conclusions were not easily reached. The adjudication working party found consensus on many topics, and Watts’ report set out a number of agreed proposals. Haryott had a much harder task, and understandably so, because there was a total difference of approach on basic commercial issues between the main contractors and the specialists. Eventually, as chairman, he drew up his own report, as did Watts, and both were sent to the construction minister. They are available in full on the DTI’s website, and have been frequently described in Building by its legal commentators.
I wrote to the minister 12 months ago setting out my personal views – also available on the web. I said that things had changed since 1994. partnering was spreading, and could have no place for poor payment. Trust and cash flow were vital to construction. Disputes on payment were not only between main and subcontractors. The right approach was to pay the correct amount on time, for work done properly. The 1996 act had generally worked well, but some changes were needed and some aspects of the payment procedures, such as the section 110(2) withholding notices, were ineffective.
Is Brown still bothered about payment terms? We’ll see. But I’d be surprised if he does nothing
The DTI consultation paper appeared on 22 March, six months after the two reports and my letter to the minister, and nearly 12 months after Brown’s Budget. The consultation ended on 21 June and produced several hundred detailed responses. Another three months have gone by while the DTI absorbed them, and we shall shortly see their reaction and their proposals.
Will anything actually happen? That depends, ultimately, on Brown. He set up this enquiry.
Two years will have effectively elapsed before he places any proposals before parliament, if he ever does. Is he still bothered about construction industry payment terms? We shall see. But I would be surprised if he does nothing. That would not be like the chancellor.