housing grants, construction and regeneration act 1996
10 things you need to know about the changes
14 July 2011
Last week the government confirmed that the long awaited changes
to the Housing Grants, Construction and Regeneration Act 1996 (the
1996 Act) contained in Part 8 of the Local Democracy, Economic
Development and Construction Act 2009 (the LDEDC Act) would come
into force on 1 October 2011. This bulletin considers some of the
more important issues.
1. Don’t panic
Whilst the changes are important, not everything is changing and
some amendments are not as drastic as they might first appear.
2. Note the date
The changes will apply to ‘construction contracts’ entered into on
or after 1 October 2011. So if you enter into a main contract on 31
September and a sub-contract on 1 October, the main contract will
be subject to the 1996 Act and the subcontract to the LDEDC Act –
and its slightly different payment regimes and suspension
provisions.
3. Oral contracts are worth the paper they're written
on
Under the 1996 Act, construction contracts had to be “in writing or
evidenced in writing”. The LDEDC Act removes this requirement.
Given that contracts can be formed via an exchange of emails or
orally during the course of a meeting, it is likely that this will
lead to more construction contracts - and more adjudications about
the terms of those contracts.
4. Avoid careless whispers
To avoid inadvertently creating a construction contract, consider
expressly stating that your tender reviews / other pre-contract
meetings are "subject to contract" and appropriately marking
minutes of relevant meetings. Further, it may help to enter into
written contracts as quickly as possible, so that (if there is a
dispute) you won’t have to examine documents or rely on witnesses
to ascertain the terms of your contract.
5. Money, money, money
Payment provisions are changing - but not entirely. For example,
you must still provide both for stage payments and an adequate
mechanism for determining payments. The overall approach under the
LDEDC Act will be broadly similar to the 1996 Act:
- application for payment
- due date for payment
- payment notice (from the paying party)
- if required, a ‘pay less notice’ (previously a ‘withholding
notice’) from the paying party.
- final date for payment
- if required, notice of intention to suspend (from the unpaid
party)
6. Can I still use pay-when-certified
clauses?
No - the LDEDC Act will not allow an “adequate” payment mechanism
to link obligations to another contract.
7. Show me the money
Under the LDEDC Act,
if the paying party fails to give a payment notice, the unpaid
party may give a ‘default payment notice’. This is needed to allow
the unpaid party to validly suspend its obligations (see point 9)
and to trigger the paying party’s obligation to pay the unpaid
party.
Unpaid parties should serve default notices as soon as possible,
as the final date for payment will be deferred to reflect the
number of days delay in the unpaid party serving its default
notice.
8. Due date
Under the 1996 Act, employers could delay the due date for payment
by providing that this will not commence until they have given a
payment notice. The LDEDC changes this, providing that a payment
mechanism where the payer (or any third party) decides when payment
becomes due, is unlawful.
9. Suspension rights
The right to suspend for non-payment is enhanced under the LDEDC
Act and a contractor:
- may suspend some or all of its obligations (previously, it
could only suspend all of its 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 its obligations (this is
no longer limited to the period of suspension itself).
10. Adjudication costs
The 1996 Act was
silent on adjudication costs. Whilst the intention was that each
party should bear its own costs, there was nothing to stop the
parties agreeing something different.
The LDEDC Act intends that any provision allocating liability
for the parties’ costs of the adjudication will be ineffective
(although there is some debate about whether the LDEDC Act does in
fact have this effect).
The LDEDC Act does allow the parties to agree (in writing):
- liability for their own costs of the adjudication after the
notice of intention to refer has been given (although this seems
unlikely in practice)
- that the adjudicator can allocate his fees / expenses between
them.
The content of this bulletin is provided for the purposes of
general interest and information. It contains only brief summaries
of aspects of the subject matter and does not provide comprehensive
statements of the law. It does not constitute legal advice and does
not provide a substitute for it.