In 2009 the Government passed the Local Democracy, Economic Development and Construction Act 2009 (the 2009 Act). Part 8 of the 2009 Act deals with construction contracts. These provisions will amend the key piece of legislation in the construction industry, the Housing Grants, Construction and Regeneration Act 1996 (the 1996 Act). The 2009 Act is not yet in force but the Department for Business Innovation and Skills (BIS) has indicated it expects it to come into force on 1 October 2011, or possibly even as early as 1 April 2011. So what are the key changes to the 1996 Act and how will they affect you?
Changes to the 1996 Act
Definition of a Construction Contract
The definition of a construction contract is being widened. The requirement for a construction contract to be in writing is being repealed and all unwritten contracts will be regarded as construction contracts for the purposes of the 1996 Act. Perhaps this is a move by the legislators to expand accessibility to the provisions of the 1996 Act and afford protection to those who do not receive it now.
The adjudication procedure within the 1996 Act remains unchanged. As verbal contracts are, however, now regarded as “construction contracts” for the purposes of the 1996 Act, a party can now refer to adjudication a dispute based on the terms of a verbal contract. These adjudications will be dealt with via the Scheme for Construction Contracts (Scotland) Regulations 1998 (the Scheme). This means you might need to think twice about having an informal chat about a Project down the pub as that conversation could be construed as a construction contract and ultimately become the subject of an Adjudication!
Whilst the payment process itself remains largely unchanged, the payment provisions of the 1996 Act have received significant attention from the legislators. It is worth familiarising yourself with these wide-ranging amendments before they come into force.
Briefly stated, the main changes are:
- New definitions for payee, payer, payment due date and specified person have been inserted;
- Witholding notices are renamed as “pay less notices” but will still effectively operate in the same way as a withholding notice;
- Pay less notices cannot be given before a payment notice and a payment notice cannot be used as a pay less notice; and
- Both payment and pay less notices must be issued even when there is no sum due.
Right to suspend
The right to suspend has been enhanced by the 2009 Act. A payee who remains unpaid at the final date for payment does not have to suspend his performance entirely; he can now choose whether to suspend any or all of his obligations. The suspending party is also now entitled to reasonable payment for the costs incurred in exercising the right to suspend. While the suspension period itself has always been disregarded when calculating any delay in the contractual completion date, now the period of time in consequence of the exercise of the right to suspend is also discounted.
Only time will tell whether the changes to the 1996 will have a significant impact on the operation of construction contracts in the UK. Whilst the coming into force of the changes to the 1996 Act may still be some way off, now is the time to familiarise yourself with the changes. In particular, you should take heed of the forthcoming ability to refer a dispute arising from a verbal contract to adjudication and perhaps err on the side of caution when discussing a Project. This will remind you of the age old rule to always put things in writing. Never before has this been more true.
Please contact me if you would like to discuss further the changes to the 1996 Act and how these could affect you.