Fears that over-complex payment system and new adjudication rules could add to industry’s costs

The provisions of the new Construction Act have been given a mixed reception by the industry, while Building reports incredulity from the legal profession over the government’s estimate that the proposed legislation could save around £1bn by improving the flow of payments.

Changes to the 1996 Construction Act were announced in the Queen’s Speech as part of the Local Democracy, Economic Development and Construction Bill.

The bill puts an end to the requirement that all contracts should be in writing, but adjudication in such cases will only be possible where the adjudication clause itself is in writing. Construction Confederation chief executive Stephen Ratcliffe told Construction News that extending the act to cover verbal contracts would “only serve to make adjudication over construction disputes a lengthier and more costly process.”

The new measures also ban the insertion of clauses into contracts that force the company that brings an adjudication to pay both sides’ costs.

There are several changes on payment terms, including the introduction of new timescales, forms of notice, and outlawing conditional payments.

The provisions will require all standard forms of contract to be redrafted, a process that Linklaters partner Ann Minogue told Building would cost “millions”.

Overall, there was widespread doubt as to the net benefits and costs to the industry of introducing the legislation in the middle of a recession.

Writing in Building, solicitor Rupert Choat of Cameron McKenna argued that many of the problems the act is meant to address are relatively rare, while the upheaval of changing established contracts and working practices could be considerable.

He wrote: “The most important question is whether, in these difficult times, the cost to the industry of changing standard forms and established payment practices (as well as worth the extra training and advice that will be needed) is worth preventing some of the malpractices of the few.”

At Construction News, Cripps Harrdies Hall partner Jane Ryland broadly agreed. “My concern is that [the act] will do little to help cash flow or improve adjudication.”