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The DTI's Construction Paper on proposals to amend the Housing Grants Construction and Regeneration Act 1996 (the act)and the scheme.
It is now almost two months since the DTI issued its Consultation Paper entitled “Improving payment practices in the construction industry”. The Paper is the most recent step of the Government’s review of the Construction Act that Gordon Brown announced in the March 2004 Budget and seeks to consult upon proposals to amend the Act and the Scheme. Additionally, the aim is to build a general consensus on the best way forward.
A number of the proposals in the Paper, flow from Sir Michael Latham's review of the Act published in September 2004. This essentially was a review of the effectiveness of legislation at facilitating cash flow down the construction supply chain and enabling the effective completion of construction projects. The conclusion was that whilst the Act is working well, it could be improved further if the facilitation of cash flow could be changed so as not to have adverse impacts on other parties or other elements of payment processes.
Whilst a number of proposals resulted in recommendations, some issues could not be agreed and no recommendation was made to resolve them. The Paper considers the proposals, whether or not a recommendation was made, together with some new proposals. For a number of reasons the paper does not consider:
• Proposals to amend the scope of the application of the legislation or where clarification could be helpful but is not actually needed.
• Issues already addressed regarding improving adjudication in the industry.
The report aims to improve the abilities of parties to a construction contract to:
1. Agree what should be paid and when or in the absence of agreement, make a referral or response to adjudication.
2. Manage cash flow and completion of the project if there are problems.
3. Refer disputes to adjudication without disincentives (defaulted payments/frustration).
The DTI asks for views on:
1. If the right issues and solutions have been identified, and how best to evaluate costs; and
2. Benefits of the proposals.
And deals with three main issues being the payment framework, other payment proposals and adjudication proposals. Set out below is a summary of these issues that are expected to be hot topics over forthcoming months.
Payment framework and proposals
Nine proposals relate to the payment provisions of the Act. In summary these are:
1. Defining the content of an adequate payment mechanism in Section 110(1).
Payment mechanisms should include details of what constitutes the payment; when assessment will be; how amounts are determined; timings from the assessment date before the final payment date and information to be communicated.
2. Removing the requirement to serve a Section 110(2) payment notice. As many contracts do not have a sanction for failure to serve a notice the requirement is generally ignored. Given this, the requirement to serve the notice is removed.
3. Providing an application for payment
Maintaining the current position allowing the payee to submit a payment application at any time whilst the payer pays only what is due.
4. Section 111 - redefining the content of withholding notices
Requiring withholding notices to state the amount the payer intends to pay.
5. Pay-when-certified clauses
Requiring contracts that include pay-when-certified clauses to provide that copies of upstream certificates are passed to sub-contractors when payment becomes due.
6. Right to reimbursement
Introducing a right to reimbursement for costs of suspension, remobilisation and allowing additional time for remobilisation under Section 112.
7. Contractual provisions on cross contract set-off
Making contractual provisions on cross contract set off unenforceable unless there is a close relationship between the contracts.
8. Pay-when-paid clauses - insolvency
Retaining the current exception to the prohibition of paywhen-paid clauses where there is upstream insolvency.
9. Stage payments for materials
Allowing stage payments under the Scheme to be made for off-site materials and work undertaken (if they are part assembled).
Adjudication provision proposals
Five proposals relate to the adjudication provisions of the Act:
1. Trustee stakeholder accounts to suspend awards pending litigation
Stopping the use of trustee stakeholder accounts to suspend an adjudicator's award pending litigation or arbitration except if the recipient is involved in insolvency proceedings.
2. Jurisdiction
Allowing the adjudicator to decide on aspects of his jurisdiction and entitlement to payment if he stands down due to lack of jurisdiction.
3. Reopening final and conclusive certificates
Providing the adjudicator with the power to open up, review and overturn final and conclusive certificates and decisions where these are of substance only to interim payments.
4. Adjudicator's immunity
Extending the adjudicator's immunity under the Act to claims by third parties.
5. Extending adjudicator independence to all Section 108 adjudications
Extending provisions on adjudicator independence from the Scheme by applying a double test of independence and impartiality.
The intention is to take forward these changes along with any amendments to the Act and Scheme resulting from the Consultation. The Paper has generally been welcomed by the industry but it fails to address issues such as how to improve the quality of decisions made by adjudicators and greater clarity of what is due. As this article is written before the election, only time will determine the success of the Paper and Consultation.
Improving payment practices in the construction industry - where are we now? By Catherine Kay of George Davis Solicitors
The DTI's Consultation Paper on proposals to amend the Housing Grants Construction and Regeneration Act 1996 (the Act) and the Scheme.
Catherine Kay
About George Davies Solicitors
George Davies Solicitors are based in Manchester City Centre. They specialise in all aspects of law for both companies and private individuals and boast a substantial property department within which sits a niche construction team with experience in a full spectrum of construction law services. The Head of Construction, Catherine Kay can be contacted on 0161 234 8861 or emailed at catherinekay@georgedavies.co.uk
