The right to refer disputes to adjudication is mandatory under the Housing Grants, Construction and Regeneration Act 1996 - but only where the contract in question is related to the carrying out of "construction operations", as defined.
Like many statutory provisions, in an attempt to achieve certainty, the wording of the definition is complicated, consisting of an elaborate (and generally inclusive) description of the activities caught by the Act - followed by an almost similarly extensive list of exclusions!
It is not necessary for the purposes of this alert to set out the inclusive part of the section - it covers a very broad spread of construction activities; but one of the more difficult questions in practice has concerned the scope of the exception in section 105(2)(c). It was this provision which came under scrutiny in the Technology and Construction Court in the case of North Midland Construction Plc v. AE&E Lentjes. The material part of the exception is as follows:
"assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is -
i.nuclear processing, power generation or water or effluent treatment..."
Lentjes (AEE) was the turnkey contractor for the construction of Flue Gas Desulphurisation (FGD) units at two coal fired power stations (Fiddler's Ferry, Cheshire and Ferrybridge, West Yorkshire). It entered into four contracts in materially the same form with North Midland Construction (NMC) for enabling and civil engineering works.
It was not in dispute that enabling works and civil engineering works at the power stations would, all other things being equal, come within the inclusive definition of "construction operations", but the question was whether they then fell out again by virtue of the exception in s.105(2)(c). It was also not in dispute that the primary activity on the sites was power generation.
The point was that NMC's civil work included the construction of foundations for components of the plant. The components included tanks, booster fans, the gas heater, the absorbers, bleed pump drain pits, a number of buildings, limestone and gypsum silos and an underground limestone unloading structure. These, argued AEE, were all necessary parts of the FGD process. In addition, the foundations under the civil works also supported structural steelwork which in turn supported components of the plant. So, it was argued by AEE, that since the works were effectively part of the process itself, they were not "construction operations".
Ramsey J said that when considering section 105(2), a narrow interpretation of the exclusion was appropriate. He considered that in the specific circumstances of the case, it was appropriate to consult Parliamentary materials in order to aid in interpretation of s. 105(2)(c) of the Act, and that those materials supported a narrow interpretation.
Applying this narrow interpretation, Ramsey J ruled that the enabling work, which consisted of temporary roads, foundations for temporary site offices, temporary services and the demolition of buildings could not be described as the "assembly, installation or demolition of plant or machinery" and accordingly the provisions of the Act applied to the enabling works contracts.
Ramsey J said that while there will always be contracts which contain aspects to which the applicability of the exclusion will be debatable, he did not think that it was the intention of the Act that there should be a detailed analysis as to whether an item might be within the exclusion, when a straightforward and commonsense analysis gave a clear answer. Accordingly, he concluded that even though there were grey areas of work, such as the concrete silos, the works under the civil works contracts were "construction operations" which could not be excluded as assembly or installation of plant or machinery under section 105(2)(c).
In reaching his conclusion, Ramsey J resolved the difference of approach taken in the cases of Palmers v. ABB, in which a narrow view of the exception had been taken, and ABB v. Norwest Holst, in which a broader construction had been favoured. He considered that the narrower approach would generally be appropriate. In his general observations, the judge noted that the operations referred to in section 105(2) could generally be brought within the "inclusive" list of activities caught by the Act. For example, "drilling for...oil and natural gas", which was excluded by section 105(2)(a), would - but for its exceptional status - be "construction...of any works...including wells" within section 105(1)(b). Accordingly the intention must have been to exclude a specific operation from the more general description. The purpose of the Act was evidently to make improvements in the construction industry by providing both a rapid dispute resolution method and also more certain payment provisions. Provisions excluding particular operations prevented those improvements applying to certain operations. It was to be expected that they would do so for particular reasons which applied to those specific operations. Viewed in the light of the parliamentary materials, it was clear that the exclusions were intended to be narrow.
This decision is to be welcomed, in that it does resolve the difficulty arising from the inconsistent approaches taken in earlier cases. It also seems to support the underlying objective of the Act, which was to make generally available to those engaged in construction work the rapid method of dispute resolution - subject only to very particular exceptions.