Can we gaze into the seeds of time and say which grain will grow? Or, for that matter, say how the Construction Act will be reformed …
Building’s distinguished legal columnist Tony Bingham wrote a valuable article recently about the review that I chaired on the Construction Act (8 October, page 54). He rightly pointed out that there were many crucial issues raised in the Working Group on Payment that did not achieve consensus. That was hardly surprising, because they involved directly contrasting commercial approaches within the supply side. Since the government had made it clear before the review began that it was hoping to use the regulatory reform order procedure to deal with perceived weaknesses in the act, and since the law which introduced such RROs requires consensus, there were always likely to be hard-line positions.
It is immensely to the credit of the two chairmen of the working groups, Graham Watts, who tackled adjudication, and Richard Haryott, who looked at payment, that they were able to produce reports that pointed several ways forward, and which would allow for the use of an RRO for some changes.
What happens now? This was a government review, commissioned by chancellor Gordon Brown after he became concerned about issues that the industry had raised with him. The government’s intention was always to lead the process and to take action. I never thought that Brown would shrug his shoulders next year and say that nothing needed to be done because the industry had no wish for change. It would have been much better if the industry and clients collectively had agreed proposals, but since they could do so only to a limited extent, they must not be surprised if the government goes for some controversial changes. However, any disputed points will need a new law, rather than an RRO.
At the time of writing this article, the DTI has not published its own consultation paper. But here are some guesses as to what they might propose.
The government's intention was always to lead the reform of the act and take action
- The adjudication report suggested there was a case for extending the process to PFI contracts, residential occupiers and the process plant sector. Since no discussions have taken place with those sectors, I think those ideas – which were never firm anyway – will all be rejected.
- The recommendation to overturn Bridgeway vs Tolent, dealing with contracts that require the party bringing an adjudication to pay all the costs even if it wins, will be accepted.
- Adjudicators will be given immunity, but not the power to award costs. Their actual independence will also be required, not just their impartiality.
- A single adjudication procedure will be prescribed, or else procedures that do not conform precisely with the statutory Scheme will be declared void.
- Trustee stakeholder accounts will only be permitted for adjudication awards if the adjudicator personally directs this – as was suggested in Constructing the Team.
- Some action will be taken to give adjudicators power to rule on their own jurisdiction.
- The payment report’s recommendations relating to reimbursements of costs after suspension and the banning of cross-contract set-off will be accepted.
- I recommended overturning the “British Eagle” judgment 10 years ago, so I hope that that will be accepted now – but I wouldn’t bet on it.
- The working group’s recommendation to scrap section 110(2) notices only becomes effective if some alternative procedure is put in its place by which the payee issues a request for payment, and there are clear time limits for action and response. I believe some action will be taken, because otherwise the act is ineffective.
I suspect that “pay when certified” clauses will be banned explicitly, but I have long believed that they were already contrary to the Construction Act. It surprises me that they have not been struck down by the courts.
The pressure from some groups to disallow “pay when paid” clauses even when there is an insolvency will not be accepted. It is not a statutory duty now to allow such clauses. They are only permissible in the case of insolvency if the contract explicitly permits such a process, and the parties have agreed to them.
Of course, those are just my hunches. The government might do nothing. But I don’t think it will. Gordon Brown rarely does nothing.