The latest round of the Construction Act review has finally arrived, and although it provides useful additions to the previous proposals, there are some telling omissions
The DTI’s consultation paper on the reform of the Construction Act is the third since Gordon Brown initiated the review in March 2004. Concern has already been expressed as to when any proposals might be enacted, given that they might require an act of parliament during a busy legislative programme.
The previous paper, brought out in January 2006, canvassed changing the act by means of a regulatory legislative reform order, which should have been far faster than passing a bill. It had seemed that the limits of the reform order process and the desire to avoid using parliamentary time influenced the January 2006 proposals, which did not address some big issues. Rather than the proposals dictating the enactment process, the reverse happened.
The intention to make changes by primary legislation recognises that although extending the act to oral and partly oral contracts does not reduce the regulatory burden on the industry, it is much needed. It also acknowledges the industry’s lack of consensus about the proposals.
The government has not exactly shown perfect consistency from paper to paper, either. In March 2005, it said it did not intend to consult on extending the act to oral and partly oral contracts.
The other significant proposal in the latest paper also betrays a lack of consensus in the industry and the government. It suggests beefing up payment notices, whereas the two previous papers suggested abandoning them (see attached "Developments in the governments thinking").
Although these two key proposals in the latest paper involve U-turns, they suggest the government has been listening. But are we moving in the right direction? We certainly are by extending the act to oral and partly oral contracts, thereby defeating a line of jurisdictional attacks on adjudicators that has nothing to do with the merits of the referring party’s case.
For payment notices the position is less clear. Frequent payers such as main contractors are unlikely to welcome the proposal whereas the specialist community may embrace it (although it falls short of the measures they lobbied for).
One interesting development is the proposal that in cases of payee insolvency, payers might withhold payment after the final date for it even though no effective withholding notice has been given. This would confirm the recent Melville Dundas vs George Wimpey decision (11 May, pages 64-65), but limit its effect to insolvencies.
The balance of the latest proposals amounts to tweaking rather than wholesale change, which is only right given that the act has generally worked well. The table on the right summarises the proposals from past and present papers.
The proposals that are not suggested in the latest paper are as interesting as those that are. There is no mention of widening the scope of the act to include PFI/PPP projects (or narrowing it to exclude PFI/PPP subcontracts), contracts involving the homes of owner-occupiers and contracts for operations-related process plant. The government ruled this out in October 2004.
Nor will it provide a statutory limit on payment period lengths or empower payers to redirect payments owed to insolvent contractors to their creditor subcontractors and suppliers. The government ruled out change on both in its March 2005 paper.
Finally, it will not introduce a single set of procedural rules for all adjudications. The January 2006 paper said: “The industry may wish to consider whether to bring its own standard adjudication procedures more closely into line with one another.” This has not happened, although the Joint Contracts Tribunal’s adoption the Scheme for Construction Contracts in its 2005 suite has helped. The June 2007 paper says nothing on this topic, which is surprising given the Technology and Construction Court’s striking down of various adjudication rules earlier this year, including the government’s own rules in the GC/Works contracts.
The deadline for responses on the latest paper is 17 September 2007. It is ironic that changing an act concerned with speed (of payment and decision-making) has taken so long. But it is hoped our new prime minister has not forgotten what he started and that if he is tempted to shelve the review, the industry will not allow it.
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Rupert Choat is a partner in CMS Cameron McKenna specialising in construction