Long-awaited draft clauses announced by DBERR aim to improve industry cash flow with savings of £1bn

Changes to the Construction Act announced today could save the industry up to £1bn, according to the Department for Business, Enterprise and Regulatory Reform.

A set of draft clauses for the revamped Construction Act – officially known as the Housing Grants, Construction and Regeneration Act 1996 - have been published by DBERR.

The department estimates that, if enacted, the clauses could reduce the regulatory burden of adjudication payments by £5.8m, and on the construction industry as a whole by £1bn by improving payment frameworks.

The biggest change will see oral contracts recognised, allowing parties to contracts to go to adjudication even if their involvement is not formally recognised in writing.

Many of the clauses aim to improve conditions for specialist and subcontractors, allowing them more easily to refer payment disputes to adjudication.

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 Limited to insolvency situations. This removes any uncertainty about the scope of this controversial ruling.
  • Improve the right to suspend performance. This would allowing the suspending party to recoup more of his costs.

Reaction and more detail to follow.