The Local Democracy, Economic Development and Construction Bill 2008, which is making its way through Parliament, outlines proposed changes to the Housing Grants, Construction and Regeneration Act 1996 ("the 1996 Act") in relation to payment and adjudication provisions.
A recent Notice of Amendment to the Bill proposes insertion of a new clause 113A to the 1996 Act and appears to be a direct response to the current economic climate. Essentially, the new clause seeks to afford some "insolvency protection" for parties to a construction contract. A similar clause had been proposed in the House of Lords but was not then taken forward.
In terms of the proposed clause, a party to a construction contract may at any time request the other party to provide adequate security, including bank guarantees and bonds, for payment. Such security would cover not only the contract price but also the cost of any variations and/or additional works.
In the event that a party fails to provide the security, the party making the request has the right to suspend any or all of its obligations in terms of the parties' contract. This right will come to an end when the other party comes up with the security as requested. The party looking to suspend must give at least 7 days' notice of any intention to suspend performance.
In terms of progress of the Bill, it has passed the Lords and Committee stage in the Commons but still has some way to go before it comes into effect. The next step is the Report stage, where the Bill is further reviewed and additional amendments proposed and considered, which will include this one. This is scheduled for 13 October 2009.
Following the Report stage, there will be a third reading of the Bill in the House of Commons and it is then expected that the Bill will receive Royal Assent in late 2009, with commencement of the construction provisions expected in 2011.