The new Construction Act is coming, and I’m afraid you’ll have to get used to it - flaws and all

Goodbye Tolent, said Baroness Wilcox in the House of Lords on 8 September. Goodbye Tolent, said the minister for construction, Mr Mark Prisk in the House of Commons the day before. From 1 October 2011, parliament has banned and killed off “Tolent clauses”. Let me explain. What you and I call the Construction Act was born 13 years ago. It brought high-speed dispute resolution to us - adjudication. By mistake, the rules were silent on the cost of adjudication. Baroness Wilcox said: “Some have chosen to exploit this by drafting clauses that use the cost of the adjudication process as a barrier to adjudication. Such clauses, commonly referred to as Tolent clauses, can require one party to bear all the costs, including both parties’ legal costs, irrespective of who initiated the process and of outcome.” She was talking about the approach taken by Tolent Construction and a few others in their terms of subcontract. She went on: “To prevent such onerous contract terms the 2009 [Construction Act] will make arrangements on adjudication costs ineffective …”. Put shortly, it’s no good any more to bury in the small print nor in letters 10 foot high that in adjudication the subby will pay the main contractor’s legal costs come what may.

Now, if that’s what was said in the House of Lords by the under secretary of state and if Mark Prisk MP, the minister of state said it again in the House of Commons and if all their fellow parliamentarians nodded in agreement, which they did, that’s a fierce message. Mr Prisk MP said that from now on there will be no costs barrier, no disincentive to refer disputes to adjudication. And they all brought the hammer down. It’s all in the new act of parliament, effective this week. The Tolent device is unlawful, unless someone is silly enough to agree such a term once the notice of adjudication is served.

We have reached practical completion, we have handed the job over and when you come to use it from tomorrow you will find it full of pot-holes … whoppers

But that’s not all. The hammer also came down on the previous idea that you could not adjudicate if it was not a contract in writing. Another mistake all gone. Any old oral deal, or back-of-an-envelope, half-baked agreement that turns into a dispute, and it will, can now be brought to an adjudicator to referee. There are new rules about payment notices; let’s call it the “statutory payment notice framework”, so that the payer has to inform the payee exactly what money is coming and when. Baroness Wilcox said: “This is not an unnecessary piece of red tape; it is designed to ensure that all parties understand what is happening.” Odd as it may sound, you will even receive a statutory notice (meaning any old email) telling you when the amount said to be owed is zero, even though you say you are owed squillions.

In telling you all this, I paused. I put my pen down. If I had not, I would have written something rude on your behalf. It has taken six years of consulting, meeting and reports to amend the bugs in the 1996 act. Parliament, officials in the Department for Business, Innovation and Skills and people like me, all being the makers of this act are like a bunch of bad motorway builders. We have reached practical completion; we have handed the job over, and when you come to use it from tomorrow you will find it full of pot-holes … whoppers. The rules banning Tolent, the rules for new payment notices, are like this motorway … full of pot-holes. And it’s left to you to get on with it. We made a pig’s ear out of the sow’s ear intended to become a silk purse. Apologies.

Any old oral deal that turns into a dispute can now be brought to an adjudicator

Oh, there is one other thing that applies to you big boys involved in PFI work. You will recall that at the heart of the Construction Act philosophy is another no, no. The 1996 act has always prevented “pay when paid” clauses, often used to delay payments to the supply chain. That rule still applies and the footwork to get round the rule is stamped on and expanded. PFI contracts, however, are described as “remarkably different”. If a toll road motorway is to be built, the department of transport will set up a special purpose company for the road. Then a major civil’s contractor or consortium of contractors will be the road maker. The ban on “pay when paid” does not apply to the cash flow between ministry and SPV and road-maker. As between the road-maker and his subbies “pay when paid” is still banned.

So new rules for our industry from 1 October 2011; get your head around them - it will only take you a few years.


Tony Bingham is a barrister and arbitrator at 3 Paper Buildings Temple