Blog: Construction Act reform – potential impact on the industry

Rebecca Barrass

Rebecca Barrass looks at the details of a UK government consultation reviewing changes to construction legislation.

The government is currently consulting on a proposed package of reforms to the construction provisions contained in Part 2 of the Housing Grants, Construction and Regeneration Act 1996 (“the 1996 Act”). The consultation is running in parallel with a consultation in relation to retention payments in the construction industry, both of which are due to close tonight at 11:45pm.

This is not the first reform we have seen in relation to the 1996 Act. In October 2011, the government introduced amendments to the 1996 Act. Both the 1996 Act and the subsequent amendments sought to recognise the problems faced by contractors in the industry, particularly the prevalence of cash flow issues faced by smaller contractors. The amendments introduced a host of changes with the objective of:

  • increasing transparency in the exchange of information relating to payments;
  • encouraging parties to resolve disputes by adjudication, where appropriate; and
  • strengthening the right to suspend performance.

  • The amendments, amongst other things, removed the restriction on who can serve payment notices; clarified the content of payment and withholding notices; introduced a “fall back” provision, allowing payees to submit payment notices where the payer fails to do so; and, prohibited “pay when paid” clauses, ensuring that payment is not dependent on payments being made under another contract.

    The amendments also introduced changes to the law surrounding adjudication, including removing the possibility of contracting parties allocating the costs of adjudication to a particular party and, inserted provisions to allow parties to suspend performance in the event of non-payment.

    The government undertook to review the amendments after five years and the result is the current consultation. The consultation relates to the law and practices that apply in England. However, Scottish businesses should not dismiss it. The relevant law in Scotland does not differ significantly from that in England and the results of the consultation will therefore likely be a good indication of the issues in Scotland. The construction industry, more than any other industry, has a tendency to transcend UK borders.

    We see a huge number of Scottish based clients coming to us with disputes that have arisen under contracts governed by English law. Often contractors will have limited opportunity to negotiate the finer contract terms and if working for an English or England based employer, will frequently find themselves tied to a contract governed by English law – often not even realising that is the case!

    The primary purpose of the consultation is to establish how effective the 2011 changes have been and whether the above objectives have been met. There is a focus on the clarity and transparency of the payment under the 1996 Act. This was a major aim of the legislation and there is clear motivation to establish whether that has been achieved.

    The consultation sets out questions in respect of the 1996 Act’s fitness for purpose, including the complexity of the existing payment framework, the effectiveness of establishing a clear debt or basis of adjudication and the frequency of adjudication. It also looks at the effect of the suspension of performance provisions on payment.

    The consultation further considers the measures implemented in 2011 relating to Adjudication. Adjudication was introduced as a means of quickly and cost-effectively resolving disputes that arise under, and typically during, a construction contract. The speed of adjudication as a means of dispute resolution cannot be denied but we are seeing adjudication being used more and more in high value, complex disputes and questions have been raised as to whether adjudication is the appropriate forum for resolving such disputes. The consultation addresses the costs of adjudication, requesting information in relation to the affordability of adjudication, whether there has been a significant decrease to costs, and if parties were more inclined to adjudicate following the 2011 amendments.

    When the consultation closes the government will consider the answers received and determine whether there is a need or a want for further reform. The effects of the 1996 Act have been huge and in most respects, beneficial to contractors but no system is without its flaws. We are seeing a big increase in the cases coming to court concerning payment provisions since the 2011 amendments. In recent years the courts have been asked a number of important questions in relation to payment notices, default notices and the applicability of the Scheme for Construction Contracts.

    To some extent, we would always expect the courts to determine issues of legislative interpretation but given the government’s resolve to review the current legislation it seems the ideal opportunity to address any issues. Whatever the outcome, and bearing in mind the current government has its hands full with all matters Brexit, the consultation is still an important opportunity to have your say and those in the industry should take full advantage of that opportunity.

    • Rebecca Barrass is a solicitor at MacRoberts

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