This consultation, published jointly by the DTI and the Welsh Assembly Government, outlines some key proposals with the aim of ‘fine tuning’ the legislation currently set out in HGCRA so that it more effectively reflects the original objectives of the Construction Act. The paper focuses on three main areas for reform: adjudication; payments; and suspension of performance.

Adjudication

The consultation looks at improving access to the right to refer disputes to adjudication. The central proposal is to extend the legislation so that it applies not just to written contracts, but also to oral and partly oral contracts. A major hurdle to reaching adjudication presently is that in the construction industry contracts are often either not, or not sufficiently, formalised. This proposal would allow a far greater number of contractual disputes to be referred to, and resolved by, adjudication, thereby minimising disruption as far as possible.

The paper also recommends the introduction of a statutory framework for the costs of adjudication, to ensure that parties pay their own costs related to the adjudication, unless agreed otherwise. Any such agreement between the parties would only be valid if made after the adjudicator is appointed, and the adjudicator should, in any event, only award costs and payment of fees that are reasonably incurred and reasonable in amount.

Currently, the parties can agree adjudication costs provisions in original contracts, such as the ‘loser’ paying all costs, or one party (usually the referring party) paying all the costs in any event. This can act as a disincentive to parties when deciding whether to refer a dispute to adjudication. Moreover, where both sides will typically bear their own costs in any event (as under the new proposals), they are more likely to try to limit these as far as possible.

It is further proposed to prohibit agreements that interim or stage payment decisions will be conclusive. The simple effect of this change would be to allow many more disputes relating to interim or stage payments to be referred to adjudication.

Payments

The proposals relating to payments focus on easing the regulatory burden on the parties to construction contracts. For example, s110(2) Construction Act, which relates to payment notices, currently requires a payer to give notice where a payment becomes due by him under a construction contract, or where it would have become due had a combination of circumstances arisen.

The consultation considers the wording of this section to be restrictive and unclear; they recommend that the definition of a s110(2) payment notice should be extended to allow notices and certificates from certain third parties to be effective payment notices. It is also proposed that a payment notice should always be required where a payment would have become due under the contract, irrespective of issues such as set-off and abatement of debts, or whether any work has actually been carried out, simplifying the confused position that currently exists.

Furthermore, the consultation recommends greater clarity in relation to the content of the notices themselves and the definition of the ‘sum due’. It also seeks to prohibit the use of paywhen- certified clauses. The effect of this last proposal would be to ensure that a certificate covering work under one contract cannot act as a mechanism to determine the timing of payment for work done under another contract.

Suspension of performance

The third key area of reform seeks to make suspension of performance a more effective remedy for the party exercising this right under s112 of the Construction Act. Currently, s112 allows a payee under a construction contract to suspend performance of his obligations in cases of non-payment, where seven days’ notice (with reasons) has been given to the payor. However, the reality of the current s112 mechanism is such that parties may often be discouraged from suspending works due to the possible negative cost implications to them of doing so.

The consultation seeks to address this in two ways. First, it proposes that the suspending party need not suspend all of its obligations to the party in default, minimising any potential cost impact. It also provides for the payee to be compensated for all reasonable losses incurred and to be given an extension of time for any delay caused by the suspension.

Other issues

Finally, the consultation considers the effect of the decision in Melville Dundas v George Wimpey, reported in our lead article. It also looks at the possibility of incorporating a consolidated ‘slip rule’ into statute, which would give an adjudicator authority to correct minor discrepancies or mistakes in his decision after it has been given to the parties.

The paper also includes a summary of benefits that it considers the proposed changes will bring to the industry. It attaches an extensive response form, and asks for comments on a number of questions on the above and related issues. The deadline for these responses is 17 September 2007.