New Foundations

Supply Management - 31/07/2008

After years of construction and review a draft Bill to amend the Construction Act has been published. Paul Cinnamond explains the most important changes for buyers

It now looks increasingly certain that changes to the housing Grants, Construction and Regeneration Act (the construction Act) will be enacted in 2009. The draft Construction Contracts Bill (the draft bill) was published this month following last summer’s consultations by the department of Business, Enterprise and Regulatory Reform (BERR). Feedback on the draft Bill is due by Septmeber 12th and purchasing managers is this sector should be aware of the likely changes to the adjudication and payment processes.

In the draft bill, the government makes some brave declarations – predicting annual savings to the industry of £1 million on the cost of adjudication, £5.8 million on administrative cost with certifying payment and £1 to £1.5 billion on improving the “payment framework” in England and Wales.

The existing Act limits the ability to adjudicate to written contact, but this is set to change with the deletion of section 107 and the extension of adjudication to parties who don’t have a written contract.

The draft Bill also does away with “Tolent clauses” (referring party must pay both parties adjudication cost regardless of the outcome) along with clauses that require the referring party to pay the adjudicator’s fees and expenses whatever the outcome. Practices like these have discouraged smaller entities from using adjudication in the past.

In order to preserve parties’ rights to contract freely, such clauses can be agreed after a dispute has been referred to adjudication. However with any agreement on cost the adjudicator can “determine” that “any of the costs” are unreasonable or only that aspect of the claimed cost are.

Key amendments are also made to the payment notice provisions. The current Construction act states that contract should include a term which provides that, for each payment due, the customer must issue a notice to the supplier specifying the amount to be paid and the grounds for paying that amount. The new draft Bill introduces the possibility of the contact containing a provision permitting the supplier to issue a notice to the customer, detailing the amount to be paid and the grounds for such amount being due. The fallback provision remains as before under the Scheme of Construction Contracts; that Is, the purchaser notifies the supplier of the amount to be paid and the reasoning. There are also amendments that give and entitlement to the suppler to suspend part of the works for non-payment and receive compensatory costs as a result of a valid suspension. Buyers in construction will follow the progress of the Bill with interest and should consider how proposed changes might affect their contract and payment practices.

Go to www.berr.gov.uk/sectors/constuction/constructionact/page13956.html for details.

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