Summary

  • HGCRA changes will apply to construction contracts from 1 October 2011.
  • Contracts being negotiated now might not be entered into until after 1 October 2011.
  • There are transition measures you could take which may help ensure contracts are compliant.
     

Overview

The changes to the Housing Grants Construction and Regeneration Act 1996 (HGCRA) come into force on 1 October 2011. Any relevant construction contract entered into up to 30 September 2011 will be subject to the current legislation. Any relevant construction contract entered into on or after 1 October 2011 will be subject to the new legislation. Then if a part of a construction contract does not comply with the new legislation, the relevant provisions of the Scheme for Construction Contracts (the Scheme) apply. If this occurs there is the potential for uncertainty about how to administer the contract and, if a dispute arises, how to commence an adjudication.

This issue is most likely to arise with contracts and sub-contracts being negotiated up to 30 September 2011, but which are entered into after that date. Accordingly you may wish to devise some transition measures to deal with these contracts. In this article we suggest one approach to this.

Contracts in negotiation

You are likely to negotiate contracts and sub-contracts now and up to the end of September 2011, which will be entered into from 1 October 2011. Where these contracts have not yet been amended to be new HGCRA compliant, the negotiating parties have a number of choices as follows:

  1. Enter into non-compliant contracts and rely on the Scheme where necessary
  2. Redraft the non-compliant contracts to become compliant contracts before entering into contract
  3. Devise transition measures so that all contracts are compliant without significant redrafting
     

The first option, albeit legally workable, would leave the most uncertainty about which contractual provisions applied and which did not. The second option could be administratively cumbersome, depending on how many contracts and sub-contracts are being negotiated at any one time. The third option is probably the most desirable, because it overcomes the negative aspects of the first two options.

The third (transition measures) option may be particularly useful where the contracts and sub-contracts in question are bespoke amended versions of standard form contracts. This is because for most of the standard forms the standard amendments will not be available until September 2011, thus delaying changes to the bespoke amendments until that time.

Transition measures

The transition measures which contracting parties may choose to adopt do not need to be complicated. Provided the measures allow incorporation of new HGCRA compliant terms into the contract, the method is unimportant. Below are some suggested transition measures which, when taken together, may assist.

1. From now, as a part of all construction contract negotiations, notify other parties that any contract executed after 1 October 2011, will be amended prior to execution to accord with the new HGCRA.

2. Add a clause like this to the contract:

"If this contract is entered into after 1 October 2011, then the clauses in this contract are amended in accordance with the addendum headed "Housing Grants Construction and Regeneration Act 1996 Update"."

3. Then, before 1 October 2011, prepare a short addendum which sets out the new HGCRA compliant changes. This should then be appended to the contract/sub-contract (and initialled by both parties) to incorporate the amendments.

Following this approach would only be necessary if the contract or sub-contract being negotiated is not already new HGCRA compliant. This approach would enable the parties to draft and incorporate compliant changes after the standard form publishers have published their own compliant amendments. This could reduce administration time and cost, but provide the certainty of knowing the contract is compliant.

Standard form contracts - published amendments

To assist those who use standard form contracts as the basis of their own bespoke contracts and sub-contracts, the information below may be useful.

Publishers of some common standard from contracts are planning to publish new HGCRA compliant amendments before 1 October 2011. The expected availability dates are: