It has been confirmed that the new Construction Act will come into force in England on 1 October 2011. This follows the issue of various Commencement Orders.
In Scotland and England, Commencement Orders were issued on 20 and 24 June bringing section 138 of the Local Democracy, Economic Development & Construction Act 2009 into force on 24 June 2011.
Section 138 adds a new section 106A into the Housing Grants Act. It contains the power for the Scottish Ministers (in Scotland), the Secretary of State (in England) and the Welsh Ministers (in Wales) to make an order that the Act (or any part of it) does not apply to any description of construction contract related to the carrying out of construction operations. The reason given for including the new section 106A at the time the Bill was going through Parliament was to give the flexibility to deal with specific issues of concern and to allow the legislation to respond to future contractual innovation.
One such issue of concern is the treatment of PFI/PPP contracts. The current position is that the top tier contracts in such schemes are excluded from the application of the Act by Exclusion Orders, but that the other contracts lower down the contractual chain, including the construction and sub contracts, are not. Since the construction contracts are often with the SPV, which is a project specific company with few assets, it is normal practice to provide that payments to be made by the SPV are linked to certification or entitlement of the SPV from the Authority (referred to as Equivalent Project Relief). That prevents that company being on risk for these payments. That form of arrangement will not be allowed under the new Act which disallows pay when certified provisions. This means that unless these tiers of contracts are also excluded, alternative means for funding these projects will require to be considered.
As an aside, whilst the need for uniformity of legislation throughout the UK has been recognised, it is possible, in theory at least, for different parts of the UK to exclude different categories of construction contracts. It remains to be seen what, if anything, the various parts of the UK decide to do.
On 27 June, the Commencement Order was issued for England bringing the remainder of the 2009 Act's provisions concerning construction contracts into force on 1 October 2011. The Scottish Order is expected to follow shortly, along with the revised Schemes.
The standard form drafting bodies will now start to issue their amended forms of contract and the clock is ticking for the industry to get up to speed with the new payment procedures before 1 October.