Practical Law

There’s no getting away from the fact that the changes to Part II of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996), to be made by Part 8 of the Local Democracy, Economic Development and Construction Act 2009 (LDEDC Act 2009), are important. However, while some things will change, many things will stay the same.

Don’t ignore the amendments and hope they will go away. The ostrich approach, sticking your head in the sand, will quickly backfire. So, what should you do?

This post alone will never be able to pick up on all the detailed issues that might arise. (Some will no doubt become test cases in future.) However, to operate on a day-to-day level in contracts, in disputes, and on site, here are six golden rules:

1. The changes are not yet in force

The changes to the Construction Act 1996 are not yet in force. We are monitoring developments about when they may come into force and will keep you informed of the effective date. Unofficial reports suggest it may come in spring 2011.

2. Follow the payment process

If you’ve entered into a construction contract, you will never be without payment terms. The trick is, unless you cover all the bases for yourself, the Scheme for Construction Contracts 1998 will apply, whether you like it or not.

The payment mechanism under the Construction Act 1996 (as amended) will be very similar to the mechanism under the Construction Act 1996 (as enacted) and will often look something like this:

• Application for payment (by the contractor, sub-contractor or professional consultant).
• Due date for payment.
• Payment notice (from the paying party).
• If required, a pay less notice, which used to be a withholding notice (from paying party).
• Final date for payment.
• If required, notice of intention to suspend (from the unpaid party).

We hope this seems familiar.

3. Understand the tweaks to the right to suspend

If you haven’t been paid what you are due under a construction contract, and the final date for payment has passed, you have a statutory right to suspend performance of your obligations under your contract. You must give written notice to the paying party. At least seven days notice is required.

Under the Construction Act 1996 (as amended), this right remains, but it is enhanced. In future you:

• May suspend some or all of your obligations. Previously, you could only suspend all of your obligations.
• Should be paid the reasonable costs and expenses of suspending for non-payment (which may also include the costs of going back to site).
• Should be given more time to complete your obligations (this is no longer limited to the period of suspension itself).

In other words, the right to suspend will be enhanced, when the changes take effect.

4. Oral contracts and those back of an envelope agreements could trip you up

One change that will affect both disputes and payments under a construction contract is the repeal of the restriction that meant only contracts “in writing or evidenced in writing” counted as construction contracts. In other words, a deal in a meeting, a phone call, an email, or a letter (in fact anything that the general law allows to form a contract) could create a construction contract.

This is a new area bound to lead to disputes, some of which will end up in the Technology and Construction Court (TCC). However, some simple training for your teams might help you avoid this, such as:

• A reminder that many things can create a contract, not just a signed and formal-looking piece of paper.
• Helpful hints, such as changing any standard pre-contract minutes of meetings forms and pre-contract correspondence so that they expressly say “subject to contract”.
• Actually entering into contracts in writing, as quickly as possible, so that (if there is a dispute) you won’t have to look through documents or rely on witnesses’ recollection of what was said and done to determine the terms of your contract.
• A health warning about agreeing oral variations to written contracts.

5. Adjudication will mostly stay the same

Again, while there may be a devil in the detail, expect to be familiar with the landscape of adjudication after the amendments to the Construction Act 1996. The major change is opening up adjudication to oral and partly oral contracts. This is a change in scope, not a change in procedure.

One extra tip: don’t try and include a so-called Tolent clause in your construction contracts.

6. Keep calm and carry on

If you are interested enough to have read this far, you ought to get familiar with the changes to the Construction Act 1996. It’s one of the key pieces of legislation affecting the construction and engineering industry, and it hasn’t really changed for the last 12 years. To learn more, why not start with our:

• FAQs on payment;
• FAQs on adjudication; and
• Our comparison table of new and old law.

For more, see our note of all our most relevant materials.

So, while it is not quite business as usual when the changes do kick in, in the words of Corporal Jones: “Don’t panic!”…

…or should that be: “Keep calm and carry on.”