Comments are invited

In July 2008, the Department for Business Enterprise & Regulatory Reform (BERR) published the draft Construction Contracts Bill (the draft Bill) together with guidance notes to explain the purpose behind the drafting of the clauses.

The draft Bill comprises amendments to the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act).

BERR has invited comments on how effectively the draft Bill achieves its objectives (as set out in the guidance notes) by 12 September 2008.

The draft Bill

The draft Bill:

  • Abolishes the requirement for construction contracts (within the ambit of the Construction Act) to be “in writing”. The Construction Act will therefore apply to construction contracts which are either wholly or partially oral.
  • Introduces new provisions rendering ineffective any contractual provision which makes an “interim payment decision” by a third party binding.
  • Prohibits clauses which make payment conditional upon the payer’s entitlement under another contract.
  • Makes wholesale amendments to Section 110 of the Construction Act, introducing a new regime for payment provisions in construction contracts.
  • Entitles a contractor to exercise a statutory right to suspend (in the event of non-payment) of part only of his work.

Implications of the draft Bill

Key implications of the draft Bill are:

  • The payment provisions in the draft Bill are far from straightforward; and may therefore well give rise to difficulties.
  • The new provisions relating to "interim payment decisions" are so widely drawn there is a clear risk of unintended consequences.
  • The provisions prohibiting clauses which make payment conditional upon the payer’s entitlement under another contract will have significant implications for PFI projects.