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Changes to the Construction Act

Changes to the Construction Act. John Redmond March 2011. 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

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Changes to the Construction Act

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  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

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