Court in the Act

Question: Is the maintenance of an item of fixed plant a construction operation? Ever since the Housing Grants, Construction and Regeneration Act 1996 came into force on 1 May 1998 this has been a topic of contention.

Now, after much wrangling and the inevitable court case, the matter seems to have been cleared up.

Powerminster entered into a contract on 5 March 1999 with Nottingham Community Housing Association (NCHA). The contract instructed Powerminster to carry out an annual service on gas appliances in each of NCHA’s properties and supply a responsive repair and breakdown service. The gas appliances to be serviced and maintained included gas central heating systems, gas fires and gas cookers.

After the work was completed a number of the invoices sent to NCHA by Powerminster remained unpaid. Powerminster gave Notice of Adjudication under the Construction Act to have the question of the unpaid invoices decided. NCHA contended that the contract was not a “construction contract” for the purposes of the Construction Act 1996. It argued that the adjudicator had no jurisdiction to deal with the dispute concerning the invoices.

The parties went to court to decide if the adjudication could proceed.

The Judgment

The Judge decided the Construction Act applied to contracts for the maintenance of heating systems. The adjudication could proceed.

The implications

Parties entering into term maintenance contracts are affected by this decision. The maintenance of the following systems are now covered by it:

• heating;

• air-conditioning;

• lighting;

• ventilation;

• power supply;

• drainage;

  This decision applies to every applicable maintenance contract entered into after the Act came into force on 1 May 1998.

• sanitation;

• water supply;

• security/communication systems.

This list of systems is not exhaustive. Any system which forms part of a building and is the subject of maintenance or repair will be covered.

Maintenance contractors for these types of systems have the following rights under the Act:

• an entitlement to regular payments. Contractors will also be entitled to receive notices stating how much is to be paid to them and why. If employers wish to set off against sums due, they must give a notice stating how much is to be set-off and why;

• a statutory right to suspend work in the event of non-payment;

• pay-when-paid clauses will be outlawed in maintenance contracts except in the circumstances permitted by the Act;

• the right to use the statutory adjudication process. This will enable contractors to have an interim decision on a dispute within 28 days of the referral of the dispute to the adjudicator.

Contractors will have to apply the provisions of the Act to their own subcontractors. The decision also has implications for facilities management contracts under PFI agreements. While the PFI concession agreement itself is excluded from the Act, the agreements entered into by the PFI consortium with the facilities management provider will be subject to the Act.

The decision also applies to all maintenance contracts entered into after the Act came into force on 1 May 1998.

It is likely that there are many contracts for maintenance in existence that do not take account of the Act. This may mean that the payment provisions of the Act have not been followed, especially in respect of giving notices.

The Courts have made it clear that an employer who does not provide proper set-off notices cannot rely on set-off in adjudication to avoid paying the contractor. The employer will have to bring any set-off as a separate claim, either in adjudication or Court/arbitration.

The number of adjudications in the “traditional” sector of the building industry has been on the increase over recent months. It will be interesting to see if the maintenance sector follows suit.