The government has released a consultation on the Scheme for Construction Contracts that proposes big changes in the industry’s rules. Here’s what I think of them …
The civil servants at the business and innovation department are to be congratulated for issuing the consultation document on the draft amendments to the Scheme for Construction Contracts before the general election. These are necessitated by the changes to the Construction Act in the Local Democracy Act 2009, and are likely to be implemented on 1 April 2011 at the earliest.
The Scheme comprises the fall-back provisions that are implied in construction contracts to the extent that they do not comply with the requirements of the Construction Act.
First, let me deal with the amendments to the payment provisions. The 2009 changes to the act require that all construction contracts identify the party that is to issue a payment notice setting out the due amount – the payer, payee or a third party, such as an architect. If the contract does not do this, the consultation document proposes the payer issue the payment notice not later than five days after the contractual payment due date. Consultees are asked whether they agree with the approach of continuing with payer-led payment notices. My view is a resounding no!
I have argued before that a payer-led payment process defies commercial logic. If I have provided a service to you, you would expect me to issue a bill. Moreover, most contracts will have been issued by the paying party. Since it has failed to identify the party that is to issue the notices, the Scheme should state that the payee must issue it. In any event, the paying party will be able to issue a subsequent notice to pay less.
The consultation document has another question: should the Scheme require that the “intention to pay less” notice be issued seven days before the final date for payment. My answer is another no. Since it is appropriate to place a strict time limit (five days) on the initial notice, it must – surely – be appropriate to place a similarly strict time limit on the intention to pay less. This should be within 14 days of payment becoming due. Otherwise, the final date could be 90 days from the due date, which would make this deadline 83 days after the due date.
For adjudication, the most contentious amendment to the Scheme relates to the introduction of the “slip rule” in the primary legislation. It is proposed that the Scheme should state that the adjudicator should have seven days in which to correct an error.
Fine so far. The contentious change involves amending paragraph 21 in the Scheme, which states that the adjudicator’s decision is to be complied with immediately on delivery. It is suggested that the slip rule change means this should be relaxed and the paragraph be amended to allow for an eight-day compliance period. This proposal must be killed stone dead. It undermines section 108(3) in the act, which says: “The contract shall provide that the decision of the adjudicator is binding.” As the Court of Appeal made clear in Bouygues (UK) vs Dahl-Jensen (UK), a decision made within a jurisdiction must be complied with and is immediately enforceable. The amendment is not needed. A party could justify non-compliance on the basis that the decision cannot be regarded as the adjudicator’s until they have rectified it in accordance with the slip rule.
The consultation document has other amendments. I only have space to comment on one and to propose a further amendment. Paragraph 20(a) in part one of the Scheme gives the adjudicator power to open, revise and review any decision or certificate “unless the contract states the decision or certificate is final and conclusive”. These words were inserted in the Scheme in error and the effect of them is to encourage parties to frustrate the statutory right of adjudication by making certificates and/or all decisions final. The consultation document asks whether there is any practical problem preventing the deletion of the offending words. Answer: there is no practical problem.
Finally, my additional proposal. In the case of Aveat Heating vs Jerram Falkus Construction (2007) Judge Havery said: “It is true the act does not say that if the Scheme applies, the contractual provisions are void”. Judge Havery held out the possibility that an adjudication could be conducted under the Scheme (where the contractual procedure is non-compliant), and under the contractual procedure where it does not conflict with the act and Scheme. This makes for utter confusion. I suggest there be a new provision that makes clear that the Scheme supersedes the whole contractual adjudication procedure.
You have until 18 June 2010 to comment on the proposals for amending the Scheme.
Professor Rudi Klein is a barrister and chief executive of the Specialist Engineering Contractors’ Group