Construction Act Changes

On 1 October 2011, changes to the Housing Grants, Construction and Regeneration Act 1996 (normally called the Construction Act) came into force. The changes are contained in Part 8 of the Local Democracy, Economic Development and Construction Act 2009 and apply to all relevant contracts entered into from 1 October.

The changes include:

• The removal of the requirement that construction contracts covered by the Act must be in writing;
• The abolition of clauses which require the party putting a matter to adjudication to meet the costs of the adjudication – any such agreement will be ineffective unless it is in writing and has been made after the giving of notice of intention to refer the dispute to adjudication;
• The abolition of ‘pay when certified’ clauses. These effectively pass the debt risk of the contractor ‘down the chain’ to subcontractors, who are not entitled to payment until the contractor is entitled to be paid;
• The requirement that a mechanism for raising payment notices be included in the contract. This must state whether the notices are to be issued by the payer or payee. Each notice must set out the sum due (even if nil) and how it has been calculated; and
• The permitting of partial suspension of work under a contract while disputes are negotiated. Previously, suspension was an ‘all or nothing’ remedy.

The changes are significant and raise the possibility that disputes may increase because verbal contracts or variations of contracts are alleged to have been made. For contractors, the abolition of ‘pay when certified’ clauses may lead to significant financial issues. In addition, standard documentation will need to be revised. The Joint Contracts Tribunal will be issuing new standard documentation to accommodate the changes.