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Housing Grants, Construction and Regeneration Act 1996 changes - 10 things you need to know

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. Dont 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 wont 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 partys 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.

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The content on this page 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.

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