A back to basics reminder of the main requirements of the Housing Grants Construction and Regeneration Act 1996.

The Housing Grants, Construction and Regeneration Act 1996, or Construction Act was created was a result of a report drafted by Sir Michael Latham in 1994 entitled "Constructing the Team".

The two key aims of the Construction Act are:-

1. to improve payments within the construction industry
2. to provide for a quicker and less-costly dispute resolution procedure, namely adjudication.

The key elements of the Act are set out below.

1. Mandatory Payment Procedures
   The payment provisions of the Act require all construction contracts to contain certain mandatory payment mechanisms, as follows:
   • Interim payments in contracts over 45 days;
   • Provide for the time at which periodic payments fall due;
   • Provide for a method of determining how much is due in respect of each periodic payment;
   • Provide for a final date for payment in respect of each periodic payment;
   • Provide for the giving of notice from the payer to the payee of the amount to be paid and any amount to be withheld.
2. Adjudication
   There is a requirement for adjudication procedures within construction contracts. Adjudication gives the opportunity for any party to a construction contract the right to have a dispute decided by an adjudicator. It is intended to be quicker and more cost effective than litigation or arbitration. Although frequently used to ensure payment, most types of dispute can be adjudicated. The Adjudicator must give his decision within 28 days of the referral. This period can be extended to 42 days with the agreement of the referring party, or extended to any period by agreement between the parties.
   The Adjudicator's Decision is binding on the parties until the dispute is finally decided by arbitration, litigation or agreement. Generally the only defence to such proceedings is that the Adjudicator's decision was made out with his jurisdiction.
3. "Scheme for Construction Contracts"
   The Scheme sets out a type of "fall-back" position for construction contracts that do not contain the requisite payment mechanisms or adjudication procedures mentioned above. Where a construction contract does not contain the necessary provisions and does not therefore that comply with the Construction Act, the terms of the Scheme shall be implied into the contract. The payment provisions are implied on a piecemeal basis, the adjudication provisions are implied as a whole.
4. Payment when paid clauses
   Section 113 of the Act makes pay when paid clauses (the 'I'll pay you when you pay me' scenario) ineffective. The terminology used in the Act is "conditional payment provisions".
   The exception to this rule is in the case of insolvency. That is, if the Main Contractor, or any other third party upon whom the payment is dependent (for example, the ultimate Employer or Funder) becomes insolvent. However, if you want to rely on this provision, you must include it in your contract.
   The wording of Section 113 of the Act does not make conditional payment ineffective where the condition is one step removed from payment, for example where payment under the subcontract is conditional upon certification under the main contract. So, "pay when certified" clauses remain permissible for the moment.
5. Suspension
   Section 112 of the Act introduces a statutory right, quite separate from any contractual rights, to suspend work in certain circumstances for non-payment.
   Where a withholding notice does not contain the required information, or is served late, and an amount is withheld/not paid, then the payee will be entitled to stop work, in an attempt to force payment.
   The right to suspend is dependent upon an appropriate written notice being served. Specifically, the payee must serve notice of its intention to suspend work under the contract 7 days prior to suspension. The practical effect of this is to allow the payer to complete payment of the amount due before suspension.
6. The meaning of "Construction Contract"
   The provisions of the Construction Act apply only to "construction contracts".
   In the Act, a "construction contract" is defined as an agreement for any of the following:
   1. The carrying out of "construction operations" (which is also a defined term);
   2. Arranging for the carrying out of construction operations by others (under subcontract or otherwise);
   3. The provision of labour, whether the contractor provides his own labour or that of others, for the carrying out of construction operations.
   The definition specifically includes agreements to do architectural, design or surveying work, or to provide advice on building engineering, interior or exterior decoration or the laying-out of landscape. Specifically excluded from the definition are contracts of employment.

Construction operations

The Construction Act provides at section 105 a definition of the term "construction operations". It is defined in terms of what it includes, and also what it excludes.

It is a long and complex definition and came about as a mixture of policy and lobbying and borrowed drafting from both tax and health & safety legislation. The definition is both exhaustive and exclusive. Case law is beginning to clarify the definition. The scope of the Construction Act is under review in particular the general exclusion of power and residential occupier works.

Contract in writing

The provisions of the Construction Act relating to payment and adjudication, with which we are concerned here, relate only to agreements that are in writing.

The Construction Act states that an agreement is "in writing" if:

• it is made in writing (whether it's signed or not);
• it is made by the exchange of communications in writing; or
• if it is evidenced in writing.

This is of particular importance when considering letters of intent. Often in the rush to get work commenced and moving along, parties neglect to finally conclude the terms of the deal they have struck. When it all goes awry, this can present difficulties. It can be difficult to ascertain whether or not there is a concluded contract and indeed what matters have been dealt with in the letter of intent.

For further information contact Chris Wiper at chris.wiper@close-thornton.co.uk or call 01325 466461

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