Contractors and their clients should cheer the latest action from the Construction Act review. Those further down the supply chain, however, might face a drubbing
Developers and contractors should be quietly satisfied at the moment, whereas subcontractors should be a tad ticked off. The cause? On 16 January, the government published the latest round of its review of the Construction Act. You might recall that Gordon Brown initiated the review largely because of lobbying by subbies.
The new paper analyses the results of the consultation of March 2005 and the 356 responses received by June 2005. It sets out the government's proposals for change and a timetable. In spring 2006, another consultation on amendments is due. From the results of that paper, conclusions should be drawn in time for the 2006/07 parliamentary session.
I will confine myself to the main proposals.
The biggest surprise is a proposal to require that certification of sums due, by one of the contracting parties or a third party, becomes an essential feature of construction contracts. Where contracts do not provide for certification, payment would be determined by an application for payment from the payee.
This proposal is a result of the government detecting from respondents that many contracts fail to identify with certainty what payments are due and when. If enacted, it should bring a little more clarity to contracts down the contractual chain and contracts on smaller projects.
Probably the only cause for worry for contractors is that the government is considering outlawing pay-when-certified clauses. Unfortunately for subbies, pay-when-paid and pay-when-certified clauses would still be valid in the event of upstream insolvency.
To cheers all round, futile section 110(2) payment notices will be binned. No action is proposed on section 111 withholding notices. Subbies had lobbied hard to require payers to give sufficiently detailed grounds for withholding and to provide that in default of such notices the amounts applied for by payees would be payable. This met strong resistance from developers and contractors.
This desire to avoid using parliamentary time seems to have affected the proposals. A case, perhaps, of the tail wagging the dog
It is proposed to bolster the right of payees to suspend performance for non-payment. Such companies would be entitled to compensation for the period during which they down tools, as well as the remobilisation period (for which an extension of time will also be due).
This makes sense, but companies will continue to be wary of suspending in case it later transpires they had no right to payment.
The government is set on banning mischievous clauses that limit access to adjudication by:
- Making interim payments "final and conclusive" to curtail adjudicators' opening up powers
- Making one party, usually the referring party, pay the other party's costs of the adjudication, win or lose
- Providing that when an adjudicator decides money is due, the sum is paid into a stakeholder account (until the dispute is finally determined) rather than to the payee.
Sadly, the government has declined to act on three key matters:
- How the act applies to PFI/PPP project agreements. At an early stage of the review, the adjudication working group recommended removing the exclusion of the act in respect of such agreements, but the government ruled this out. The recent Midlands Expressway case puts this issue into new focus (20 January, page 60).
- WA single adjudication procedure. The government has put the burden on the industry to bring its adjudication procedures more closely into line with one another. This is unlikely to solve the trouble created by a proliferation of different adjudication rules.
- Extending the act to cover oral and partly oral contracts. The government is lukewarm, but this seems to be partly because any change would require primary legislation. It wants to change the act if it can by regulatory reform order and this is only available for reducing regulatory burdens, whereas such a change would extend them. That desire to avoid using parliamentary time seems to have affected the proposals. A case, perhaps, of the tail wagging the dog.
Rupert Choat is a solicitor advocate specialising in construction at solicitor CMS Cameron McKenna. Email him at email@example.com