The new Construction Act, comes into force in England and Wales on 1 October 2011. This article focuses on ten key questions about how the Act will work.
Q. Will oral contracts be caught by the Act?
A. Yes. The payment and adjudication provisions will apply to any construction contract.
Q. What happens to construction contracts on projects not completed by 1 October 2011?
A. Any contract entered into before 1 October 2011 will be subject to the old regime.
Any contract entered into after 30 September 2011 will be subject to the new regime.
Q. Is anything happening to adjudication, aside from adjudication applying to oral contracts?
A. Contracts will no longer be able to allocate the costs of adjudication (known as Tolent clauses) unless (a) the agreement to allocate is made in writing, is contained in a construction contract and gives power to the adjudicator to allocate his fees and expense, or (b) is made in writing after the giving of a notice of intention to refer a dispute to adjudication. The current Construction Act does not prevent Tolent clauses but a 2010 case was thought to have effectively rendered the majority of them unenforceable. It was also understood that parliament’s intention in the new Act was to bring an end to such clauses. That does not appear to be the effect of the wording of the new Construction Act. Parties will be able to agree such clauses provided they comply with the requirements set out under (a) above. It is also not at all clear what the practical purpose of (b) above is. It is difficult to imagine a situation where both parties would be prepared to agree to a Tolent clause after a notice of intention to refer a dispute has been issued.
Q. Will there still be two notices?
A. There will in fact be three notices. The current section 110 notice, which is currently rarely issued will become a “Payment Notice” and will become far more important.
There will also be something called a “Default Notice”, which can be served by the party expecting to receive payment. The current withholding notice will no longer exist and will effectively be replaced by a “Pay Less Notice”.
Q. Will the paying party continue to be able to ignore giving a Notice on the due date of a payment (the current Section 110 notice)?
A. No. If the Paying Party does not give what will be a Section 110 A Notice or Payment Notice, the receiving party may give a Default Notice stating how much they believe is due.
Q. Will the Pay Less Notice look similar to the current withholding notice?
A. No. A Pay Less Notice will need to:
- Specify the sum that the paying party considers is due.
- Specify the basis on which that sum is calculated.
Q. Will it be possible to fail to serve a Pay Less Notice and still not pay the certified sum?
A. Only in certain cases where the receiving party subsequently becomes insolvent.
Q. I have bespoke terms and conditions that I use regularly, can I still continue to use them after 30 September 2011?
A. At your peril those parts of your terms and conditions that do not comply with the new Act will be unenforceable and replaced by the amended Scheme.
Q. I am a main contractor, will I be able to continue to retain retention under a sub-contract until the Certificate of Practical Completion and/or the Making Good Defects Certificate are issued under the main contract?
A. No. This will be unlawful. Pay when certified clauses will no longer be permitted.
Q. What are JCT and NEC up to?
A. JCT have already issued track changed versions of the amendments they intend to make to the forms and will be publishing new forms in September.
NEC has confirmed that it will be producing amendments in September.