The Housing Grants, Construction and Regeneration Act, also known as the ‘Construction Act’, has been a critical piece of legislation affecting the construction industry since it came into force on 1 May 1998.
It affects all “construction contracts” in England and Wales. If you are engaged in construction, it is likely your contract is caught by the Construction Act. Many of the standard forms of contract (JCT, NEC) adopt the essential elements: (1) Payment and Notices (2) Rights of suspension and (3) adjudication.
There has been a plethora of cases reported by the Courts which reinforce the need to have a deep understanding of how the elements of the Construction Act affect your project. Failure to comply with the Construction Act can have catastrophic consequences on cash flow, progress of work and prospects of successful dispute resolution.
We have extensive experience of this complex area of the law: both as party representative in adjudication proceedings and advisors on the application of the Construction Act.
Payment and Notices
- The Scheme for Construction Contracts (England and Wales) Regulations, known as ‘the Scheme’, supplements the Construction Act in England and Wales and provides fall-back provisions where the contract itself does not comply.
- Any non-compliant payment terms will be replaced by the relevant payment terms in the Scheme.
- Any ‘pay when paid’ terms are unlawful and likely to be replaced by the Scheme.
- Contracts have to provide an ‘adequate mechanism’ for establishing what payments become due and when ( the ‘due date’) and final date for payment.
- The payer has to give notice, not later than 5 days after the due date, specifying the amount of the payment to be made and the basis on which the payment is calculated.
- Provisions might be in play that permit the receiving party to issue an application for payment where no payment notice is given. The sum applied for can become the ‘sum due’ for payment with serious consequences for the paying party.
- A party may not withhold payment after the final date for payment of a sum due unless it has given an effective notice of intention to withhold payment (a ‘pay less’ notice) which must specify the amount to be withheld and the ground for withholding payment and under the Scheme, given not later than 7 days before the final date for payment.
Suspension
- The right of suspension is triggered by non payment of the sum due for payment (see Payment and Notices above). The party intending to suspend can suspend performance of any or all of its contractual obligations.
- Where the right to suspend is implemented, the suspending party is entitled to additional payment of its costs and expenses incurred.
- The suspending party will also be entitled to an extension of time for completion of the works commensurate with the suspension period.
Adjudication
- The Construction Act brings in the right for a party to refer a dispute to a 28 day process for deciding the dispute by an adjudicator.
- An adjudicator’s decision is generally upheld by the Court in the event of non-compliance through separate enforcement proceedings conducted in the Technology and Construction Court.
- The process is intense and in some respects unpredictable in terms of the outcome, in part as adjudication is by its nature ‘rough and ready’.
- Adjudication gives ‘teeth’ to the payment and notice provisions outlined above and can bring tremendous pressure to bear on non-compliant parties.
- To maximise prospects of success, it is essential to have a thorough understanding of the process and the resources to act quickly, often at short notice to tight deadlines.
We specialise in all aspects of the Construction Act.