Changes to the Construction Act

1. Changes to the Construction Act John Redmond March 2011

2. Local Democracy, Economic Development and Construction Act 2009 • Amends the HGCRA Part II– adjudication and payment terms • Only affects contracts entered into after the Act is in force • Scheme amendments still outstanding – consultation response ended June 2010 • In force 1 October 2011?

3. HGCRA 1996 - reminder • Gives parties in all qualifying construction contracts: • Right to adjudicate disputes – 28 day decision • An "adequate" contractual payment mechanism – calculating sum due with final date for payment • Right to receive notices in advance setting out amount due, and any withholding intended to be made • Right to suspend if no payment by FDP • A ban on pay when paid clauses (insolvency exception)

4. LDEDC Act – Summary of key changes • Removal of s.107 HGCRA requirement for a 'contract in writing' (s.139 LDEDC) • Adjudication provisions (ss. 140 – 141 LDEDC amending ss. 108 HGCRA) • Statutory 'slip' rule for clerical or typographical errors in adjudicators' decisions. • "Tolent" clauses outlawed

5. LDEDC Act – Summary of key changes • Payment provisions (ss 142 – 144 LDEDC amending ss.109 – 111 HGCRA) • "Pay-when-certified" clauses outlawed (exception for management contract arrangements) • Payment and withholding notice provisions changed • Introduction of payee notices • "Pay less" notices: not just for contra charges

6. LDEDC Act – Summary of key changes • Suspension provisions (s. 145 LDEDC amending s. 112 HGCRA) • Enhanced right to suspend for non-payment: allowing suspension of part of payee's obligations • Express right to extension of time for suspension period and payment of costs

7. LDEDC Act – s.107 oral contracts • S.107 HGCRA – 'contracts in writing' – original justification • Sufficient certainty needed for summary procedure • Only affects statutory position • RJT Consulting v DM Engineering (2002) CA – all terms must be in writing for Act to apply • Jurisdictional challenges post-RJT

8. LDEDC Act – s.107 oral contracts • S.139 LDEDC repeals 107 HGCRA • 'The Act' will apply to all contracts • Concerns • Industry practice • Difficulties for adjudicators – how will they deal with oral terms? • Some terms still need to be in writing – otherwise Scheme

9. LDEDC Act – s.107 oral contracts • S.139 LDEDC now repeals 107 HGCRA • 'The Act' will apply to all contracts, oral or written • Concerns • Industry practice • Difficulties for adjudicators • Practicalities – dealing with disputes as to oral terms • Some terms still required to be in writing – otherwise Scheme

10. LDEDC Act – Notices relating to payment • HGCRA required notices to be sent • S110 – for amounts to be paid • S111 – for amounts withheld • If you don't serve a s110 payment notice • HGCRA is silent • Consequences depend on contract wording

11. LDEDC Act – Notices relating to payment • Under HGCRA If you don't serve a s111 withholding notice • you cannot withhold any sum otherwise due • where the contract contains no 'certification' procedure the value of the work done may be disputed

12. LDEDC Act – Notices relating to payment • New payment notice regime – s.110A • Every construction contract must contain a term requiring either • the 'payer' or • the 'payee' to give the other a 'payment notice' not later than 5 days after 'due date' • Payment notice must set out amount due and basis of calculation

13. LDEDC Act – Notices relating to payment • Payee default notice s110B • If payer fails to give a s110A payment notice • Payee's application for payment 'becomes' payment notice • If no application for payment procedure in contract, payee can serve its own payment notice at any time before FDP • If payee gives s110B(1) payment notice, then FDP is postponed

14. LDEDC Act – Notices relating to payment • Requirement to pay notified sum – s.111(1) • 'Notified sum' is amount shown on applicable payment notice • Payer may give notice of intention to pay less • Within prescribed period – 7 days before FDP (default) • This then becomes the 'notified sum'

15. Questions