Construction Act Your guide to the new law and the key changes (under the LDEDC Act 2009)

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1 Construction Act 1996 Your guide to the new law and the key changes (under the LDEDC Act 2009)

2 What is the Construction Act? Part II of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996). Applies to construction contracts (sections ), whether oral or in writing (following repeal of section 107). Governs statutory payment (sections ), suspension for non-payment (section 112) and adjudication (section 108). 2

3 What is the LDEDC Act? Part 8 of the Local Democracy, Economic Development and Construction Act 2009 (LDEDC Act 2009) substantially amends the Construction Act Rules on statutory payment, suspension, and adjudication all affected. 3

4 What is a construction contract? Section 104, Construction Act Contract for carrying out of construction operations (section 105). Excludes some engineering contracts, such as contracts to build a power station (section 105(2) and Exclusion Order 1998). 4

5 The statutory payment process (as enacted) 5

6 The statutory payment process (as enacted and as amended) 6

7 Payment: an adequate mechanism Sections , Construction Act Contracts over 45 days. Entitlement to stage/regular payments. What is due? When? (Not set by payer s notice.) What is the final date for payment? 7

8 Payment: pay-when-paid and pay-when-certified No pay-when-paid (section 113). Except for upstream insolvency. No pay-when-certified (section 110(1A)). Except between, for example, employer and management contractor: that is, in a contract providing for construction work by others (section 110(1C)). 8

9 Payment: payment notices Section 110A, Construction Act Given by payer, payee or specified person (architect/ engineer/ project manager). Given not later than 5 days after payment due date. Given even if sum due is zero. 9

10 Payment: default payment notice Section 110B, Construction Act Given by payee, if required. Default payment notice delays final date for payment. Payee s application for payment may be payment notice. Two payment notices? No. 10

11 Payment: pay notified sum Sections 111(1)-(2), Construction Act Express obligation to pay notified sum. Defined as amount in payment notice or payee s default payment notice. 11

12 Payment: pay less notice Section 111(3), Construction Act Pay less notice similar to withholding notice. Given by payer or specified person. Given not later than prescribed period before final date for payment. Show calculation in pay less notice. 12

13 Right to suspend Section 112, Construction Act Suspend some or all of unpaid party s obligations. Payment of reasonable costs and expenses of suspension. Extension of time for delay caused by suspension, not just period of suspension. 13

14 Oral contracts: payment Requirement for construction contract to be in writing repealed (section 107). Oral contracts must include payment terms, or relevant parts of Part II of Scheme will apply. Watch out for oral variations to written terms. 14

15 Oral contracts: adjudication Section 108, Construction Act Oral contracts: all of Part I of Scheme applies by default. Don t trip up: nine adjudication requirements to be in writing or all of Part I of Scheme applies (sections 108(2)-(4)). 15

16 Adjudication: fees and slips Section 108A, Construction Act No pre-agreement in contract of who will bear parties fees and expenses (no Tolent clause). Contract can give adjudicator power to determine who pays his costs in his decision. Statutory slip rule (section 108(3A)). 16

17 Conclusion Overall, not much has changed, but important changes in language. Construction contracts extended to oral and partly oral contracts. Know your payment notices. Keep enhanced right to suspend in mind. Use the Scheme for adjudication or include in writing the Act s nine adjudication requirements. 17