Construction Act changes

From 1 October 2011 all construction contracts entered into will be subject to Part 8 of the Local Democracy, Economic Development and Construction Act 2009 which amends the Housing Grants, Construction and Regeneration Act 1996(the Construction Act)

The main changes can be summarised as follows:

1. Where previously the statutory provisions only applied to construction contracts in writing, from 1 October all construction contracts, whether wholly or partly oral, will come within the statutory regime.

2. Adjudicators have been given the statutory power long enjoyed by Arbitrators to amend clerical and typographical errors in their decisions.

3. Clauses which stipulate the allocation of costs of an adjudication as between the parties are not enforceable unless they are agreed in writing after the Notice of Adjudication has been issued unless such provision relates to the allocation of the adjudicator’s fees in which case it will be enforceable. Earlier cases have held that such “Tolent Clauses” had the effect of fettering a party’s right to go to adjudication.

4. Parties will no longer be able tomake payments under a construction contract conditional on the performance of obligations under another contract or a decision by another person as to whether such obligations have been performed. The effect of this provision is to extend the prohibition on “pay when paid” clauses to cover “pay when certified” clauses as well.

5. Withholding notices have been replaced with “pay less” notices under a restructured payment regime which involves issuing a payment notice from the payer or third party (e.g. contract administrator) within 5 days from the due date for payment or, failing that, from the payee via a default payment notice. If the payee serves a default payment notice, the final date for payment is postponed by the number of days between the date the payment notice should have been issued and the date the default payment notice was issued. The amount to be paid is the amount contained in the last notice served (be it either the pay less notice, default payment notice or payment notice). It is important, therefore, for payers to have robust systems in place to check any default payment notices served by the payee otherwise they could end up paying more than they bargained for!

6. The statutory right for a contractor or subcontractor to suspend has been widened to allow the payee to suspend “any or all of” its obligations under the construction contract. The Construction Act is also amended to allow the suspending party to recover from the defaulting party “a reasonable amount in respect of costs and expenses incurred by that party”.

It is important that all construction contracts are reviewed and amended to ensure that they will comply with the amendments to the Construction Act. The JCT is publishing a new suite of 2011 standard form contracts in September 2011.

Edwin Coe LLP is offering a fixed fee contract review service to ensure your contracts and general terms and conditions are Construction Act (as amended) compliant.

Contact: Joe Griffiths on 020 7691 4169 or email: joseph.griffiths@edwincoe.com.

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