Lawyers say BERR’s figures for savings brought by reform of Construction Act ‘do not stack up’

Government claims that the reform of the Construction Act could save the industry £1bn through improved payment mechanisms have been dismissed as fantasy by legal experts.

The long-awaited changes to the 1996 act, which introduced adjudication and an statutory payment mechanism, were announced in the House of Lords last week as part of the Local Democracy, Economic Development and Construction Bill. They give greater protection to subcontractors’ payments (see box), although do not meet the demands of some specialist lobbying groups.

The department for business and enterprise (BERR) said the clauses could reduce the burden of adjudication payments by £5.8m, and save the industry £1bn through improved payment frameworks. However, lawyers have warned that any savings could be offset by the cost of amending contracts to conform with the bill.

Tony Bingham, a barrister and arbitrator, said he was “fascinated” by BERR’s calculations. He said some changes, such as an end to the requirement that contracts be in writing, would result in “enormous savings”, but he added that he was unable to fathom how the department had reached the figure of £5.8m savings in adjudication.

Rupert Choat, a partner in CMS Cameron McKenna, described the estimates as “awful” (see below). He said it was admirable that the government had tried to calculate the costs and benefits, but said that the figures “did not stack up”.

“I just don’t know how BERR could cost that sort of thing,” he said. “Whether there are net costs or net benefits remains to be seen.”

Ann Minogue, a partner in Linklaters, said she could not begin to estimate how much it would cost the industry to amend contracts, but that it would be “millions”.

The bill has received a mixed response from the industry, sections of which have been at loggerheads over reform of the act since consultations began four and a half years ago.

Stephen Ratcliffe, chief executive of the Construction Confederation, said the proposed payment provisions were “poorly drafted” and would not help contractors of any size.

A BERR official who worked on the reform said the department had walked a “strict tightrope” while compiling the clauses.

How the act will be reformed

Adjudication

  • Contracts will no longer have to be in writing
  • So-called Tolent clauses, which require the party that brings the adjudication to pay both sides’ legal costs, will be banned
  • A “slip-rule” will allow adjudicators to correct errors in their decisions.

    Payment

  • Restrictions on who can issue a payment notice (the key element in the act’s payment mechanism) have been removed
  • A “default” mechanism has been created if the payer fails to issue a notice
  • The use of “pay when certified” notices has been prohibited

    Suspension

  • Party that legitimately suspends its work owing to dispute will be allowed to claim costs
  • It will also be entitled to an extension of time

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