construction and development law update - October
2011
new Construction Act takes effect from 1 October 2011
The most important legislative change to the
construction industry in 13 years. On 1 October 2011 the new
Construction Act (containing Part 8 of the Local Democracy,
Economic Development and Construction Act) comes into force
bringing with it substantial changes to mechanisms governing
payment along with less significant changes to provisions for
adjudication. In addition, from 1 October onwards,
construction contracts will no longer need to be in writing (or
evidenced in writing) in order to be covered by the
legislation.
substantial changes to payment mechanisms
The new Construction Act introduces a
principle whereby a payer must pay the "notified sum" on or before
the final date of payment. Provisions for the issue of
payment notices are provided in new Sections 110A and Section 110B
and introduce the concept that a payment notice may be issued by
either the payer or the payee. The rationale behind the
change is that the parties further down the contractual supply
chain may now take the initiative in terms of driving cash
flow. If a payer is slow to issue a payment notice the payee
may step in or effectively "trump" the payer's position by issuing
its own notice. This scenario presents several traps for the
unwary since the payer will be bound to pay the sum covered by the
"payee notice", unless it is astute enough to issue its own counter
notice.
The new Act preserves the concept of "due" and
"final" dates for payment and payment notices must be issued no
later than five days after the "due" date.
Under the old (1996) Act the payer still had
the option to withhold money from any sums otherwise due.
That concept remains under the new Act although the old style
"withholding" notices have been replaced by new style "pay less"
notices. As previously, a "pay less" notice (in other words a
notification from the payer that it intends to pay a sum less than
that which has fallen due) must be issued no later than the end of
"prescribed period" (which can be agreed by the parties to the
contract) which must end before the final date for
payment.
A final, significant, amendment to the payment
provisions is contained in Sub-Section 110(1A) which stipulates
that any term requiring payment to be conditional on performance of
obligations under another contract will fall foul
of the requirement to have an adequate payment mechanism.
Consequently, provisions that state that payment of, for example, a
final balance of retention due to a sub-contractor is dependent
upon the issue of a certificate under a higher contract in the
chain will be rendered ineffective.
amendments to adjudication provisions
There are minor changes made in relation to
the timetable for adjudication and to allow an adjudicator to
correct minor errors in his or her decision. However the main
change in relation to adjudication is the amendment to the
provisions on costs and, in particular, the final nail in the
coffin of "Tolent" clauses. These are clauses which require a
referring party to pay the costs of the adjudication and/or the
adjudicator's fees. Such terms are now ineffective under the
new Act.
