Summary and implications

The common language between the United States of America and England can lull people into a false belief that the process of procuring building works will align. This article focuses on certain key differences that US developers will discover when they start procuring works in England, and explains the background to those differences and how they are approached in England.

English construction industry

The English construction industry (in common with other countries) has its acronyms, terminology, and ‘usual approach’ that come as second nature to its construction professionals, until you meet a developer or construction professional whose experience is in another jurisdiction, who brings a fresh set of assumptions to the process. Different jurisdictions have widely differing legal and contractual approaches on pertinent issues, and it greatly assists all concerned to have some knowledge of those differences and whether they are, or are not, relevant to a particular project.

English law

This article focuses on certain key differences that US developers will discover when they start procuring works in England, and explains the background to those differences and how they are approached in England.

The first, and very simple point to highlight, is that this article is talking about English law. There is no such thing as British law or UK law, each of England, Wales, Scotland and Northern Ireland have their own legal systems and whilst there are many overlaps, they have different legal structures. England and Wales have the closest legal systems, but with the introduction of the Welsh Assembly, even there divergences are now emerging.

As in the USA, the construction industry in England operates on the basis of suites of model form contracts produced by bodies such as the Joint Contracts Tribunal (JCT forms) and Institute of Civil Engineers (NEC and ICE forms). These forms are habitually subject to schedules of amendments made either to adjust the risk profile or to address particular project requirements.

The Construction team

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Architects, engineers and project managers are familiar professional disciplines to Americans approaching a project in England but there are others whose disciplines may be less familiar. “Quantity surveyors” act as cost consultants for the developer, valuing works, quantifying claims etc. Developers have a statutory obligations (under the Construction (Design & Management) Regulations 2007) to appoint a CDM Co-ordinator to co-ordinate the health and safety issues surrounding the implementation of the construction works. The final unfamiliar name is the approved inspector, appointed to verify compliance with local authority building regulations and facilitate the necessary certificates.

Payment

Under English law ‘pay when paid’ clauses, allowing a main contractor to only pay its subcontractor when it receives its own payment from the developer, are generally ineffective since the Housing Grants, Construction and Regeneration Act 1996. This places the risk of employer non-payment (whether through insolvency or otherwise) on the main contractor.

The financial assessments of sums due to the contractor are undertaken by a ‘quantity surveyor’ or cost consultant, who is appointed by the developer to provide such advice and valuations. English law sets out various requirements concerning payment, most notably the requirement that where the developer wishes to withhold sums from a payment due to the contractor he must give advance notice of such deductions to the contractor, including details of the amounts and reasons for such sums being withheld. The contract will stipulate the required periods.

Mechanics liens

In England, once materials have been delivered to site and physically incorporated into the works, then ownership transfers to the landowner regardless of the terms of the contract and whether the materials have in fact been paid for. This means they usually become the property of the developer some time ahead of payment, due to the inevitable passage of time between incorporation, valuation and payment. There is no legal right for the unpaid supplier to remove the materials or to obtain any charge over the materials or the property. The supplier is an unsecured creditor. The US concept of a mechanics lien, allowing such a supplier to register a charge over the property as security for its payment, does not exist in England. The result is that the need for subcontractor lien waivers at completion does not arise.

Retention

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The initial comment is that the American ‘retainage’ becomes ‘retention’ in England. On larger projects it is deducted at a rate of three per cent (rather than the higher percentages frequently seen in US contracts) from all interim payments up to ‘practical completion’ (‘substantial completion’ in US terms), at which point half of the amount is released. Whilst in the US it is common to see the second part released when the ‘snagging list’ (‘punch list’ in the US) works are completed, in England the second half is held until expiry of the twelve month period for rectifying notified defects mentioned above, and subject to completion of such defects works.

Disputes

As in the US, the parties to a contract have certain choices of dispute resolution, with arbitration and litigation being the main options. You may also see provisions for mediation or other forms of informal resolution process, either as suggested or mandatory stages prior to commencement of formal proceedings. Under English law there is also the statutory right for either party to a construction contract to refer any dispute to adjudication, a quick dispute resolution procedure aimed at delivering a result to the parties within a maximum of 42 days of initial reference, that will be binding unless and until either the parties agree otherwise or the dispute is taken to arbitration or litigation. The aim is to give a quick resolution of issues that arise during a project to keep things moving on site. Contracts will typically stipulate the identity of the proposed adjudicator (or the professional body that will nominate the adjudicator) and set out certain rules governing conduct of the adjudication.

Limitation periods – defects liability

England: Limitation period for bringing claims

  • Contract executed under hand: six years.
  • Contract executed as deed: 12 years.

In line with contracts such as the American Institute of Architects (AIA) forms, the main English standard forms provide for an initial period (usually 12 months) during which the contractor must return to site to remedy notified defects in its works. The contractor (and indeed the other members of the construction team) then has a period of contractual liability during which the developer can pursue a claim for breach of contract if defects are discovered in the works attributable to a breach of contract by the contractor. Unlike the US periods which dependent upon the statute of limitations in the particular state generally range up to about six years, in England if a contract is executed as a deed (there are particular formalities, broadly speaking company seal and two director signatures), then the relevant period is 12 years from completion of the works.