The Sooner, The Better

Construction News - 31/08/2006

Paul Carter Hemlin explains what has changed since the Housing Grants Construction and Regeneration Act came into force almost 10 years ago

After years of application and extensive legal review, the Housing Grants Construction and Regeneration Act now casts a wider net. Created to improve cash flow in the construction industry, the Act, which came into force in May 1998, introduced a requirement for contracts of 45 days or more to provide stage payments and put an end to “pay when paid” terms. Statutory adjudication was added later – giving either party the right to refer any dispute to an adjudicator for a binding and enforceable decision within 28 days.

“The Scheme for Construction Contracts” also exists, providing “model” payment terms and adjudication clauses. Traditionally purchasers have only taken into account those companies relating to sections 104(1) and 105(1) (in construction or operations), assuming many supply chain firms are not included in the Act.

But purchasers beware: a number of cases have shown the definition of construction operations within Section 105 has a liberal interpretation in the courts.

In Nottingham Community Housing Association Ltd v Powerminster Ltd (TCC 30/06/2000) the purchaser refuted adjudication proceedings on the grounds that the contract was not construction related as specified by Section 105. Justice Dyson stated that heating, air conditioning, lighting, power, drainage, sanitation and water supply systems are all vital parts of a building whose proper functioning is required if a building is to be fit for habitation. This concludes that maintenance and repair of such parts that have been installed in a building are construction operations within paragraph (a) of Section 105.

Baldwins Industrial Services Plc v Barr Ltd (TCC 6/12/2002) follows this approach. The claimant contended the supply of a mobile crane was an operation under the Act. This was disputed on the grounds that the contract was for hire only. Rejecting this, the judge ruled that a contract for the supply of a mobile crane plus driver was a contract for an operation, which formed an integral part of, or was preparatory to, the construction works being carried out.

So what should purchasers do? They should exercise caution – particularly if there is any doubt when contracting, especially for service and maintenance, regarding the application of section 105. Any service or supplier that could be viewed as intrinsic to the construction process, or whose function is required to make a building habitable, is likely to be covered by the Act.

It is wise to include your own adjudication terms particular to the field of work as opposed to resolving disputes by the fall-back position, namely the “Scheme”. As most claims are raised by suppliers, purchasers should ensure their adjudication provisions do not give the adjudicator power to make an award on the parties’ fees.

Blake Newport estimates approximately 65 per cent of claims win, 25 per cent lose and 10 per cent are split decisions. If operations are likely to exceed 45 days, incorporate compliant payment terms that meet the purchaser’s required cash flow, otherwise payment under the Scheme may apply, which could be just 24 days from the date of claim.

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