“Changes to the Construction Act” and a “Legal Update”
Presented by
Gregory Buckley – Senior Associate
Jonathan Robinson – Solicitor
McGrigors’ Construction and Engineering Team
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Changes to the Construction Act 1996
Part II of The Housing Grants, Construction and Regeneration Act 1996 applies to
construction contracts and deals in particular with adjudication and payment (“the
1996 Act”).
The Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI
1998/649) (“Scheme”) is implied into construction contracts which are not compliant
with the 1996 Act.
The Local Democracy Economic Development and Construction Act 2009
(“Construction Act 2009”) makes changes to the 1996 Act and comes into force:
•
1 October 2011 (England and Wales) and
•
1 November 2011 (Scotland)
Key areas affected include:
•
Payment
•
Suspension
•
Adjudication
The current position…..
the 1996 Act
For “construction contracts” entered into between 1 May 1998 and 30
September 2011 (in England and Wales)
s. 104/105 – Construction Contract/”Construction Operations”
s.107 – Agreements in writing
s.108 – Adjudication
s.109 – Payment
s.110 – Payment Notice
s.111 – Withholding Notice
s.114 – Suspension
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The transitional period………
The 2009 Act changes are not retrospective
Currently negotiating a contract - what payment and adjudication
provisions are to apply?
All “construction contracts” entered into on or after 1 October 2011 (in
England and Wales) are subject to the 1996 Act (as amended by 2009 Act)
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The 2009 Act and the changes it makes
to the 1996 Act…….
s.107 of the 1996 Act is deleted – the requirement for a “construction
contract” to be in writing
The new payment and adjudication provisions therefore apply to:
• “construction contracts” entered into on 1 October 2011 and onwards
• whether in writing, oral or a combination of the two
Nb. Section 108(2)
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Payment
The 2009 Act makes amendments to the payment provisions in the 1996 Act and
provides a new regime for payment provisions in “construction contracts”.
For “construction contracts” entered into on 1 October 2011 and onwards:
•
s.109 – Entitlement to Stage Payments
•
s.110 – Dates for Payment – an adequate mechanism is still required
•
s.110A - Payment Notices – prohibition on conditional payment clauses and ‘pay when
certified’ clauses
• Payer, Specified Person or Payee to give payment notice within 5 days of due date
• Must specify sum considered due and provide the basis of the calculation
• Still required even if the sum due is zero (s.110A(4))
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Payment
• s.110B – ‘Default Payment Notice’ can be served by the payee:
• if a payment notice is not given
• and must include the same details as a ‘Payment Notice’
– BUT – a ‘Default Notice’ can only be served in circumstances where
the payee has not already submitted an application for payment prior to
the date for service of the payment notice
– If ‘Default Payment Notice’ is given:
• later than five days after the ‘Payment Due Date’ - it postpones the
‘Final Date for Payment’ by the same number of days as the
‘Default Payment Notice’ was late
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Payment
• s.111 – Payment of notified sum
• payer must pay notified sum unless the payer has issued a ‘Pay
Less Notice’
– ‘Pay Less Notice’ is to (s.111(4)):
• specify the sum the payer considers is due;
• the basis of the payer’s calculation;
• Be given no later than the period prescribed in the “construction
contract”
• s.111(10) – no requirement to pay if payee becomes insolvent
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Payment
“construction contracts” entered into between 1 May 1998
and 30 September 2011 (in England and Wales)
Valuation
Valuation
28d
7d
Due Date
5d
17d
Payment Notice
Final Date
7d
Withholding Notice
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Payment
“construction contracts” entered into on
1 October 2011 and onwards…..
Valuation
Valuation
28d
7d
Due Date
5d
17d
19d
Payment Notice
Final Date
2d
7d
Pay Less Notice
Default Notice
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Payment
What scenarios could catch you out?
Serving a Withholding Notice instead of a new Pay Less Notice and
inadvertently breaching the requirements of the 2009 Act.
Failing to appreciate that a payee’s ‘Default Notice’ equates to a “notified”
sum.
Failing to issue a valid “pay-less” notice.
Not serving a “payment notice” because the sum due is zero and
subsequently being faced with a default notice from the payee.
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Suspension
“construction contracts” entered into on 1 October 2011 and
onwards…..
No common law right to suspend performance – must be a “construction
contract”
The 1996 Act introduced the right for an unpaid party to suspend
performance if sums due were not paid. The 2009 Act enhances that right.
Key changes:
– Partial Suspension – s.112(1)
– Reasonable Costs and Expenses – s.112(3A)
– Extension of time to cover remobilisation (which can extend beyond the
period of suspension – s.112(4))
A valid notice must still be served prior to suspending any obligations –
check for any suspension right within your contract (as it may differ)
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Adjudication
“construction contracts” entered into on
1 October 2011 and onwards…..
Key changes to the 1996 Act regarding Adjudication
•
The agreement to refer disputes to Adjudication must still be in writing
– otherwise the Scheme still applies (s.108(2))
•
Statutory slip rule – (s.108(3A))
•
Agreements about costs of the Adjudication are ineffective save for
two examples (s.108A):
• Parties may confer power on Adjudicator to allocate his fees and
expenses between the parties; and
• Parties may agree allocation of their costs of the adjudication
(once a Referral Notice has been served)
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The Standard Form Contracts
• JCT - published tracked changes of JCT 2005 suite on 15 September
2011
• NEC3 – issued September 2011 amendments
• Infrastructure Conditions of Contract (ICC) – ICC suite of contracts
published 1 August 2011
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JCT 2011 (Standard Building Contract)
Interim
Application
Due Date
Interim Certificate
or
Interim Payment
Notice
Final Date
7d
5d
14d
Pay Less
Notice
Contractor may
make
an
application – it is
not necessary to
do so.
Monthly as detailed
in the Contract
Particulars. PostPC due dates are
every two months
The Interim Cert (issued by the
Architect/CA) details the sum due. If no
Interim Cert is issued, the Interim App
becomes an Interim Payment Notice (IPN)
and gives the sum due. If no Interim Cert
and no Interim App, the Contractor can
issue an IPN stating the sum due.
5d
Previously the withholding
notice. Must specify the
sum to be paid and the
calculation of that sum.
Subject to any Pay Less
Notice, the sum stated in
the Interim Certificate or
Interim Payment Notice as
the case may be will be
payable.
JCT 2011 (Design and Build)
Interim
Application
Payment
Notice
Due Date
Final Date
?d*
5d
14d
Pay Less
Notice
5d
Submission
of
the
Interim App triggers the
payment mechanism
The due date is the later of (i) the
specified date (usually monthly) or (ii)
date of receipt by Employer of Interim
App.
*This time period will vary from contract to contract depending on what is agreed
between the parties. It will be recorded in the Contract Particulars.
If the Employer does not
issue a Payment Notice,
the sum to be paid
(subject to any Pay Less
Notice) will be that
contained in the Interim
App.
Previously the withholding
notice. Must specify the
sum to be paid and the
calculation of that sum.
Subject to any Pay Less
Notice, the sum stated in
the Payment Notice or
Interim Application will be
payable.
NEC3 – Y(UK)2
Assessment Date
Due Date/Payment Notice
Final Date
Pay Less Notice
7d
7d
Contract Data
21d*
Contractor may submit
application on or before
the assessment date –
clause 50.4
Project Manager certifies a payment within
7 days of each assessment date. Certificate
is Payer’s Payment Notice – clause 51.1
and Y(UK)2.2
* unless stated otherwise in the
Pay Less Notice to be served no later
than 7 days before Final Date for
Payment – Y(UK)2.3
Each certified payment is made within three weeks
of each assessment date (unless stated otherwise in
the Contract Data) – clause 51.2
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Practical Issues brought about by
the changes to the Construction Act
• Remember the date – 1 October 2011 (in England and Wales); and that
there is a transitional period (when both the 1996 and 2009 Acts apply)
• It extends to any oral agreements you may make – records are even
more important than ever
• Follow the new payment process – the new provisions:
- ‘Payment Notice’ can now be given by either party and must be given even
if the amount due is zero
- The new ‘Default Notice’ allows the payee to take control (should the
payer fail to serve the Payment Notice)
- Withholding Notices are gone – ‘Pay Less Notice’
• Understand suspension rights
• Beware of unwritten contracts – mark all pre-contract negotiations
‘subject to contract’
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Topic 2 – A Legal Update
Agenda
•
Enforcing an Adjudicator’s Award
•
Cross-contract set off
•
Expert witness immunity
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Topic 2 – A Legal Update
(a) Enforcing an Adjudicator’s Award
•
Enforcing an Adjudicator’s award – where the successful party is ‘insolvent’ and
asking the court to enforce
•
Court has discretion to not enforce an Adjudicator’s decision and to grant a stay
of execution– RSC Order 47, Rule 1(1)
•
Test: Is there a risk that the referring party may not be able to repay this
money should the Adjudicator’s decision be overturned?
•
The court will exercise this discretion differently depending on the type of
insolvency:
•
Insolvent liquidation
•
Administration
•
CVA
•
No insolvency procedure – but insolvency is imminent?
The most recent case where these legal principles are set out is Pilon Limited v
Breyer Group Plc [2010] EWHC 837 (TCC)
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Topic 2 – A Legal Update
(b) Set Off – Equitable Set Off
•
No express clause giving right to set-off – therefore no ‘legal set-off’ is available
•
Set-Off under the same contract and Cross-contract set-off – the differences
•
Equitable set-off maybe available between two different contracts:
Test: so closely connected it would be manifestly unjust to refuse the ability to
set-off?
•
Refusal by one party to perform another contract created the ‘close
connection’. Geldof Metaalconstructie NV v Simon Carves Ltd [2010] EWCA
•
Remember to check whether your contract has an express clause that removes
the availability of equitable set-off
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Topic 2 – A Legal Update
(c) Expert Witness Immunity
•
Retrospective abolishment of an expert’s immunity from liability
•
An expert is now liable (in negligence) for verbal evidence given and for advice
given in preparation of a dispute resolution process
•
So, what duties does an expert now owe:
-
Contractual duty – express or implied
-
Tortious duty – reasonable skill and care
•
Experts might start being appointed more frequently by client and solicitor
jointly – therefore any duty would be owed to the client and the solicitor
•
Think about recovery of fees – money on account
•
Review the terms and scope of your PI policy
Jones v Kaney [2011] UKSC reported at [2011] 2 WLR 823
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THANK YOU
McGrigors LLP
1 The Avenue, Spinningfields Square, Manchester
M3 3AP
www.mcgrigors.com
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