The Local Democracy, Economic Development and Construction Act 2009 (The New Construction Act) became effective on 1 October 2011 (in England & Wales).
Summary
The changes to the Housing Grants, Construction and Regeneration Act 1996 (the Old Construction Act) are in five principal areas:
• Construction Contracts need no longer be in writing;
• Adjustments to the periodic payments procedures;
• Adjudicators can make corrections to their Decisions - a “slip rule”;
• Agreements as to who is to pay the costs of an adjudication;
• Adjustment of the right of suspension.
Background
The raison d’être of the Old Act was to improve cash-flow via adjudication and a new scheme of periodic payments. Due to the ubiquitous nature of the new regime, the intervening decade or so has thrown up anomalies that the New Act is meant to remedy.
The changes in brief
1. Construction Contracts need no longer be in writing:
Under the Old Act, for the Act to apply the agreement had to be “in writing”. This cut down on the evidential problems that would otherwise occur with an oral contract. However if the contract failed the test it would not be subject to the Act at all. The tipping point in that balance came in 2002, the Court of Appeal decided that the whole of the agreement had to be in writing, not merely some of the major terms.
At one level the amendment saves many contracts which would otherwise fall outside the Act, however it also means that oral contracts are adjudicatable, possibly delaying and disrupting that process. Also enforcement actions in the Technology Court will be more complex.
2. The new periodic payment regime
The Old Act / Scheme had a regime like this:
And the New Act /Scheme is like this:
The major change here is the strengthening of the Payment Notice procedure by allowing it to be initiated by the contractor’s side (see the right side of the diagram) where there is no notice from the employer.
3. Correcting “slips” in the decision
By implying a term into the contract the courts had held that there was a right in the adjudicator to correct his Decision. The New Act gives that statutory effect and requires all Construction Contracts to have a clause to that effect.
Hence the adjudicator can correct any “clerical or typographical errors arising by accident or omission”, any error being corrected "within five days of the delivery of the decision to the party".
4. Agreements to pay costs
There is a statutory right to adjudicate “at any time”, however a substantial disincentive was introduced by the so-called Tolent clause. That is that the initiator of the adjudication (often the contractor / subcontractor) must pay the costs and expenses of both parties, win or lose.
The New Act outlaws such clauses save where they are entered into after any notice of an intention to refer a dispute to adjudication (a far more unlikely scenario).
5. Adjustment of the right of suspension
The Old Act had the novel right to suspend performance (upon 7 days notice) for non-payment. This right could be enforced if a “sum due” was not paid in full by the final date for payment and no effective Withhold Notice had been served.
Whilst a consequential extension of time (except the time to remobilize) was available, what was obviously missing was any right to a consequent payment.
The New Act adds a right to recover reasonable costs and expenses incurred as a result of the suspension, together with a right to suspend just part of the works.
Please note: These key points are only intended to give general guidance and are no substitute for specific legal advice on any given situation.