Practical Law

Clause 60(10) of the Infrastructure Conditions of Contract (ICC Conditions) retains withholding notice provisions despite the Construction Act 1996 (as amended) replacing withholding notices with pay less notices. Does this mean that the contract fails to comply with new statutory regime?

ICC Conditions

From 1 August 2011, the ICC Conditions replaced the suite of engineering contracts known as the ICE Conditions of Contract. This followed the ICE’s July 2010 announcement that it was withdrawing from its role as a co-sponsor of the ICE contracts. The ICC Conditions are intended to comply with the Construction Act 1996 (as amended).

Clause 60(10)

Clause 60(10) of the ICC Conditions is entitled “Notice of intention to withhold payment” and states that:

“Where… the Employer is to withhold payment after the final date for payment of a sum due under the Contract the Employer shall notify the Contractor in writing not less than one day before the final date for payment specifying the amount proposed to be withheld and the ground for withholding payment or if there is more than one ground each ground and the amount attributable to it.”

Practitioners will recognise this wording as reflecting the requirements of section 111(2) of the Construction Act 1996 (as enacted).

Pay less notices

The Construction Act 1996 (as amended) replaces withholding notices with pay less notices. Section 111(4) of the Construction Act (as amended) states that a pay less notice must specify:

“…(a) the sum that the payer considers to be due on the date the notice is served, and

(b) the basis on which that sum is calculated.”

Other forms of contract

While a construction contract can comply with the Construction Act 1996 (as amended) without copying its wording verbatim, it is best practice to follow the statutory wording in contractual payment provisions, thereby avoiding any argument that the contract departs from statutory requirements.

To that end, most standard forms of contract that have been updated to comply with the Construction Act 1996 (as amended) closely reflect the new statutory wording. For example, clause 4.10.2.1 of the JCT Design and Build Contract, 2011 edition, requires the Employer to:

 “…specify the sum that he considers to be due to the Contractor at the date the notice is given and the basis on which that sum has been calculated”.

This drafting approach increases contractual certainty and avoids unnecessary disputes.

Specific concerns

In addition to the general risk that arises when departing from the statutory wording, there are also specific phrases in the new pay less regime that may have a different meaning to the old withholding notice wording. For example:

• While a pay less notice is similar to a withholding notice, it differs slightly by requiring a “calculation” rather than just a “ground” for paying less.
• Some commentators have suggested that the new requirement to state the “basis” on which the amount is calculated changes the scope of the paying party’s duty.

These differences are subtle and the courts are likely to take a dim view of technical arguments about what constitutes a pay less notice. However, any contract that departs from the statutory wording exposes users to the risk of being challenged in court.

Best practice

It is unclear whether the retention of withholding notice wording in clause 60(10) is deliberate or simply an oversight in the drafting process. In either case, it is impossible to predict with certainty whether a court would find that clause 60(10) offends the Construction Act 1996 (as amended). Even if it does, the practical effect of replacing clause 60(10) with the equivalent provision from the Scheme for Construction Contract 1998 may be limited in many cases.

Despite this, practitioners should consider amending clause 60(10) to more closely reflect the statutory wording, thereby avoiding the risk altogether. This is a relatively straightforward amendment that may save both parties considerable cost and inconvenience.