Construction Act payment clauses revamped

The Department for Business, Enterprise and Regulatory Reform (BERR) has announced a set of long-awaited draft clauses which allow specialist subcontractors to refer payment disputes to adjudication more easily.

Changes to the Construction Act could improve industry cash flow with savings of £1bn, according to the department.

The department estimates that the clauses could reduce the regulatory burden of adjudication payments alone by £5.8m.

The draft clauses would:

• Remove the requirement for the construction contract to be in writing in order for the Act to apply. This would allow parties to contracts to refer disputes to adjudication in situations where they are not currently able to do so.

• Introduce a statutory framework to work out who will bear the costs of the adjudication. At the moment, a stronger party may contractually oblige a weaker party to bear all of the costs, regardless of the outcome, with the consequence that the weaker party is less likely to refer a dispute to adjudication.

• Prohibit agreements that interim or stage payment decisions are conclusive. This would ensure that all disputes about stage payments can be referred to adjudication.

• Introduce greater certainty and clarity into the statutory payment framework. These measures would give the payee a clear idea of what he will be paid and when.

• Limit the decision of the House of Lords in Melville Dundas (in receivership) v George Wimpey UK to insolvency situations. This removes any uncertainty about the scope of this controversial ruling.

• Improve the right to suspend performance. This would allow the suspending party to recoup more of his costs.

Specialist Engineering Contractors’ (SEC) Group chief executive Rudi Klein said: “It’s all about trying to ensure that people know how much they’re owed at the payment date. That’s been the objective.

“We’ve almost got there. There are, however, one or two issues that we still need to deal with,” said Klein.

“On adjudication, progress has been achieved. The abolition of the need for written contracts will reduce challenges to the jurisdiction of the adjudicator, but, on the other hand, there is a major omission - we want one procedure for adjudication, not this myriad of procedures.

“Another key omission that we want to rectify as well is abolishing cross-contract set off. That was always agreed, but the government don’t want to act on that. We’ve got to still force that issue.”