We’ve all been there – sitting quietly in our office when an adjudication referral lands on our desk. Straight away the clock is ticking and deadlines are looming. However, before you even begin drafting the response, there’s the small matter of checking whether the contract’s provisions are Construction Act 1996 compliant. This might be your first ground for challenge. You take a closer look and realise they aren’t. This is going to be a statutory adjudication under the Scheme for Construction Contracts 1998.
Shades of grey
Next step, check whether the relevant contract is a “construction contract“ within the definition of the Act. Simple enough task? Well, hopefully, most of the time it is, but there has been more than one occasion when the question of whether something is a “construction operation” has not been entirely black and white.
Let’s take a hypothetical example. Is a contract to construct and install steel pipelines to transport gas from a gas plant to another location a “construction contract” under the Construction Act 1996?
Work through the definition of “construction operations” and you will find that section 105(1)(b) helpfully refers to the construction of “pipelines”. Brilliant! But a cursory look to the exclusions (in section 105(2)) and things start to cloud over because section 105(2)(c) excludes the:
“…assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is – (ii) the production, transmission, processing or bulk storage of… gas.”
To work out whether the installation of pipelines in my example is caught by this exclusion, we are left with two key questions:
- Are pipelines “plant”?
- What is the primary activity on the site (and what constitutes the site)?
Are pipelines “plant”?
“Plant” is not defined by the Construction Act 1996 but there is direct authority, including a House of Lords decision, on its meaning. “Plant” should be given its ordinary meaning and is “anything by means of which the operations of the business were performed”. Are we any the wiser?
- Homor Burgess Ltd v Chirex (Annan) Ltd, Lord MacFadyen defined pipe-work that ran between pieces of machinery as an integral part of the plant, without which the plant could not function. This would mean it was excluded from the Act.
- Ledwood Mechanical Engineering Ltd v Whessoe Oil & Gas Ltd, Ramsay J held that a sub-contract for fabrication and erection of “pipe-work” was not a construction contract for the purposes of the Act.
My example can be distinguished from these on the basis that the pipeline is not an integral part of plant or machinery, but is primarily for the transmission of gas to a particular location.
There is case law (and parliamentary debate) that supports the view that the parliamentary draftsmen intended to exclude only work that was so intimately associated with the plant and machinery that it could not reasonably be considered apart.
Does this mean the contract in my example would not be caught by the exclusion and the Construction Act 1996 would apply? Maybe. But surely where the employer’s business is the storage and transmission of gas, it seems more likely that pipelines that carry gas would be found to be something by which the operations of the business were performed?
What is the primary activity on the site (and what constitutes the site)?
If pipelines are “plant”, is the contract in my example excluded because the work is being done on a site where the primary activity is the transmission of gas?
The “primary activity” at a given site is a question of fact. There is no direct authority on what constitutes a site where an underground pipe is being constructed.
To answer this, we need to look at the nature of the whole of the site and ask what the primary purpose is. Where the pipeline is being constructed at the gas plant itself, the primary activity would surely fall into the category of “transmission, processing or bulk storage… of gas”, and so the contract would be excluded.
But what about the pipelines coming from the plant transmitting the gas elsewhere? Here, although the pipelines themselves are installed for the purpose of transmitting gas, the “site” they are installed on may have another primary purpose (farmland, residential, road etc). If so, work on this land may not be captured by section 105(2)(c)(ii).
Arguably, the “site” should constitute only the trench where the pipeline was being constructed or installed and not the wider area of land. However, this may leave us in a predicament with some works under a particular contract being “construction operations” while others are not.
Why does it really matter?
Apart from an interesting academic debate, why does it really matter?
It matters because if you wrongly classify a construction contract and proceed to an adjudication decision based on the wrong adjudication procedure, you risk the decision being unenforceable. Similarly, you may find that parties have wrongly believed that their contract was not a construction contract under the Construction Act 1996, when in fact it was, in which case any non-compliant payment provisions would be replaced by the Scheme’s payment provisions. This in turn could mean payment notices have been served out of time.
The best practical advice is to ensure from the outset that contracts of this type contain Act-compliant provisions. This will reduce the scope for potential challenges and avoid the problems that could be caused if the contract covers a variety of work, some of which are “construction operations”, some that may be covered by the Construction Act 1996 and other parts that are excluded from it.