A recent Technology and Construction Court decision has confirmed that the ‘construction operations’ which are excluded from the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”) should be interpreted narrowly to ensure that non-specialist contractors and subcontractors down the contractual chain are not unfairly excluded.
- Where there is no contractual provision for adjudication, in order to refer a dispute to adjudication, a party must establish that the contract falls within the definition of a ‘construction contract’ under s104 of the Construction Act, which is defined as the ‘carrying out of construction operations’;
- Certain ‘construction operations’ are excluded from the Construction Act by S105 (2) of the Act;
- The extent of the exclusion in s105 (2) has been the subject of debate for a number of years. In June this year, Mr Justice Ramsey provided clarification of the position in his decision in North Midland Construction Plc v AE &E Lentjes UK Ltd  EWHC 1371 (TCC).
Construction operations: which are caught by the Construction Act?
The ‘construction operations’ which are caught by the Construction Act are wide-ranging and encompass all alteration works which are integral or preparatory to such operations. The majority of disputes that have been considered by the court in recent years have centred on the interpretation of the type of ‘construction operations’ which are excluded from operation of the Construction Act. In particular, the precise meaning of s105(2)(c) which deals with the exclusion of the works involving the assembly, installation and demolition of plant or machinery or the erection or demolition of steelwork where the primary activity is either nuclear, power generation, water treatment, or bulk storage of chemicals, oil or gas. Prior to this decision, case law had adopted two different interpretations of s105(2)(c), referred to below as the broad and narrow approach.
Recent case law: narrow interpretation to exclusion preferred
North Midland Construction Plc V AE &E Lentjes UK Ltd
The facts were that AE&E Lentjes UK Ltd, was appointed as turnkey contractor by Scottish and Southern Energy plc to provide flue gas desulphurisation units to two coal fired power stations at Fiddler’s Ferry, Cheshire and Ferrybridge, West Yorkshire. These units required enabling works and civil works before the units could be installed. AE&E Lentjes UK Ltd entered into four sub-contracts in respect of the enabling works and civil works with North Midland Construction Plc. The enabling works included the construction of temporary roads, services and construction of the foundations of the site offices and demolition of buildings. The civil works included the construction of foundations for components of the plant such as tanks, gas heater, absorbers, pump house, de-watering and waste treatment.
A dispute arose over the final account and North Midland Construction Plc sought a number of declarations under CPR Part 8 including whether the enabling works and civil engineering works fell within the excluded works in s105(2)(c). AE&E Lentjes UK Ltd argued that the enabling works and civil works were all necessary and effective parts of the flue gas desulphurisation units and so were caught by the exclusion in s105(2)(c).
Mr Justice Ramsey confirmed that the court should generally adopt a narrow interpretation of s105(2)(c). It was held that the works under the agreements for enabling works and civil works could not be described as ‘the assembly, installation or demolition of plant or machinery’ and accordingly, did not fall within the exclusion. The works amounted to ‘construction operations’ and were therefore caught by the Construction Act, even though they had been carried out at a site where the primary activity was power generation, one of the excluded activities under s105(2)(c)(i).
Mr Justice Ramsey considered that if the intention of the section had been to exclude all the construction operations on a site where the primary activity was power generation that could easily have been achieved by adopting different wording. Equally, if it had been intended to exclude all preparatory activities, then a sub-section similar to s105(1)(e) could have been added.
The purpose of the Construction Act was to improve the construction industry by providing a rapid dispute resolution mechanism and improving the certainty of payment provisions. It was carefully drafted to exclude only operations where the relevant specialist process engineering industry was deemed sufficiently organised and regulated so as not to need legislative protection. Other construction operations, where the work is not of a particularly specialist nature, were not intended to be caught and so should not be exempt.
Mr Justice Ramsey’s view was that a broad interpretation of the exclusions would significantly reduce the application of the Construction Act and unfairly exclude certain contracts.
Whilst it is likely that there will always be certain aspects of every contract where the applicability of the exclusion would be debatable, his view was that it was not the intention of the Construction Act that there should be a detailed analysis as to whether a particular construction operation fell within the exclusion, when a straightforward common sense analysis gave a clear answer.
Those with particular involvement in the negotiation of contracts for work at power stations, water treatment and process plants and similar facilities will welcome this decision because it attempts to provide some consistency to the approach taken by the court to the meaning of s105(2).
It also upholds the underlying intention of the Construction Act which is to provide a rapid dispute resolution method to those engaged in construction work, with only very limited exceptions.
Nevertheless, it seems unlikely that this will be the end of the matter as it gives rise to the odd result that the steelwork which supports the plant on a power station would be excluded from the Construction Act whilst the foundations which support the steelwork would not. It is also questionable whether the paintwork to the same steelwork would also be regarded as excluded from the Construction Act.