Construction Act - key changes

New regulations apply to any construction contracts entered into since October 2011, particularly regarding payment procedures, oral contracts and adjudication costs.
Failure to adhere to the new provisions could result in the default provisions of the Construction Act applying to your contractual arrangements.
If you have not reviewed and updated your contracts and procedures, then it would be prudent to do so as soon as possible.

Payment procedures

It is in relation to the payment procedures under construction contracts that the most wide ranging changes have occurred. You should ensure that you are familiar with the new terminology introduced by the amendments and that you have revised the standard terms and conditions in your contracts. In brief, the payment provisions are as follows:

• The payment due date is still the date determined in the contract;
• Within five days of the payment due date, the payer must issue a “payment notice” which must set out the sum considered to be due for payment on the payment due date. The notice must contain a calculation of the sum so set out.
• If the payer does not issue a payment notice, the contractor can issue a “default payment notice”. This can be done at any time after the payment notice was due, but should be done as expeditiously as possible as it may affect the timing of receipt of payment.
• In replacement of the old withholding notice, the payer may issue a “pay less notice”. This must be done at least and no later than seven days before the date for final payment and the notice must set out the amount which the payer intends to pay and the basis for its calculation.

The purpose of the new procedure is to improve the fairness of the payment procedures under construction contracts. For example, if a default payment notice has been issued and the payer does not issue a subsequent pay less notice, the amount in the default payment notice will stand as the amount to be paid. Similarly, the right to suspend work as a result of non-payment has been amended to allow the contractor to suspend all or part of the work whereas previously this right only allowed the contractor to suspend all the work currently being undertaken.
The provisions around the procedures of the payment notices and time periods are detailed and we advise that you should seek in-depth advice in this regard.

Oral or partly oral contracts

For the first time, the provisions of the Construction Act have been extended to oral or partly oral contracts. Parties to such agreements can now seek the protection of the provisions of the amended Act and can refer disputes under oral agreements to adjudication. However, if you are involved in oral contracts you should take care to heed the following points.

• Pre-contract negotiations should be marked as such and formally noted as being “subject to contract”. This is to avoid such discussions being incorporated as terms of the oral agreement;
• Critically, access to the adjudication procedure set out under the new Act can only be gained if the agreement to refer disputes to adjudication is in writing. If it is not, the default provisions will automatically apply. The choice, then, is to have either a partly written contact that includes the adjudication clause, or to submit to the default provisions.
• Well-drawn and comprehensive contracts remain best practice and this will enable you to avoid the default provisions being applied to your arrangements.

Adjudication costs

How the costs and fees of the adjudicator are to be paid have been given more clarity and a measure of fairness introduced. Clauses which pre-determine which party is to be responsible for the costs of the adjudicator (this was usually the referring party) are now unenforceable. Parties have two choices under the new regime: they can allow the adjudicator himself the power to make the allocation of the fees and expenses between the parties; or, once the matter has been referred to adjudication, the parties themselves can reach agreement in this regard.

Conclusion

The amendments to the Construction Act outlined above briefly are mandatory. Where contracts do not comply with the provisions of the new Act, they will be subject to the default provisions of the legislation. To ensure that your contracts and procedures fall within the provisions of the new legislation a full review should be undertaken of standard documents and procedures.

For more information please contact Yildiz Betez