The English construction industry has its own acronyms and terminology and its own ‘usual approaches’. Here, we focus on the key differences that US developers encounter when procuring works in England – the areas that may cause difficulties if developers simply assume that practice is the same in both countries.
England, Wales, Scotland and Northern Ireland have their own legal structures. England and Wales have the closest systems, although divergences are emerging following the formation of the Welsh Assembly. Nabarro advises primarily on English Law, although we have close ties with firms in other UK countries.
Model form contracts
As in the USA, the English construction industry operates on the basis of suites of model form contracts, produced by bodies such as the Joint Contracts Tribunal (JCT forms) and Institute of Civil Engineers (NEC and ICE forms). These are usually subject to schedules of amendment created to adjust the risk profile or to address particular project requirements.
At a glance: construction professionals
Some disciplines within the construction sector may be unfamiliar to US companies:
- Quantity surveyors act as cost consultants for the developer, valuing works, quantifying claims etc.
- CDM co-ordinators: Developers have a statutory obligation (under the Construction (Design & Management) Regulations 2007) to appoint a CDM co-ordinator to oversee health and safety issues
- Approved inspectors are appointed to verify compliance with local authority building regulations and facilitate necessary certificates.
‘Pay when paid’ clauses, which allow a main contractor to pay a subcontractor only when it receives its own payment from the developer, are generally ineffective under English law, following the Housing Grants, Construction and Regeneration Act 1996. This places the risk of employer non-payment on the main contractor.
English law sets out various requirements concerning payment, most notably that where the developer wishes to withhold any payment due to the contractor he must give advance notice, including details of the amounts and reasons for their being withheld. The contract will stipulate the required periods.
Once materials have been delivered to site and incorporated into the works, ownership automatically transfers to the landowner. This means they usually become the property of the developer some time ahead of payment. There is no legal right for the unpaid supplier to remove materials or obtain any charge over the materials or the property. The US concept of a ‘mechanics lien’, allowing a supplier to register a charge over the property as security for its payment, does not exist in England. This means that the need for subcontractor lien waivers at completion does not arise.
You say ‘retainage...’
American ‘retainage’ is called ‘retention’ in England. On larger projects this is deducted from all interim payments at a rate of three per cent up to ‘practical completion’ (‘substantial completion’ in US terms). At this point, half the amount is released. In the US it is common to see the second portion released when the ‘punch list’ (‘snagging list’ in the UK) works are completed. In England this is held until the end of the 12 months following completion during which the contractor must return and rectify new notified defects.
There are a number of possible approaches to dispute resolution. Arbitration and litigation are the main formal options, although mediation and other informal approaches may be suggested or stipulated before formal proceedings begin.
Under English law there is a statutory right for either party in a construction contract to refer any dispute to ‘adjudication’. This is a fasttrack resolution procedure which determines the dispute within less than 42 days. The resolution is binding unless (or until) the parties agree otherwise or the dispute is taken to arbitration or litigation. Contracts will usually name a proposed adjudicator (or the professional body that will nominate the adjudicator) and set out certain rules governing the adjudication.
Limitation periods – liability for defects
In line with contracts such as the American Institute of Architects (AIA) forms, the main English standard forms stipulate an initial period (usually 12 months) during which the contractor must return to site to remedy notified defects (see earlier comment on release of retention).
The contractor (and indeed the other members of the construction team) then has a period of contractual liability during which the developer can pursue a claim for breach of contract and seek damages arising from any breach. In England if a contract is executed as a deed (there are particular formalities here, broadly speaking company seal and two director signatures), the relevant period is 12 years from the date the defective works were carried out or completed. If not, the relevant period is 6 years.