The Construction Act and you
TOP TEN reasons why the new Act affects you and your businesses, explained by Charlotte Barker, HVCA Solicitor and Commercial & Legal Adviser.
The Housing Grants, Construction and Regeneration Act 1996 (Part II) as amended by the Local Democracy Economic Development and Construction Act 2009 (Part IX) (England and Wales) - the 'New Act' - came into force on 1 October 2011.
In Scotland it comes into force on 1 November; and not until 2012 in Northern Ireland.
1. The New Act will affect nearly all construction and engineering contracts carried out by HVCA members. The new scheme governing payment and adjudication has also been amended.
So, what’s new?
2. Oral agreements are now covered under the New Act.
3. New payment terms: The parties now have the option to decide which party is to give the payment notice. If the payer is obliged to give the payment notice and defaults, the payee can give a default payment notice (in the event there is no contractually required payee application which will otherwise constitute the default payment notice). The sum specified in the default notice then becomes the debt which the payer must pay.
4. Pay-when-certified mechanisms have been outlawed. This means that payers will no longer be able to operate payment mechanisms dependent on the occurrence of events under another contract e.g. practical completion and making good defects certificates under the main contract. This prohibition does not apply to construction management contracts. In practice, this amendment should outlaw the crippling practice of cross-contract set-off, which allows the payer to set-off sums owed to it by the payee against sums it owes the payee under other contracts.
5. In addition to the payee’s ability to suspend any or all of his obligations under the contract, where payment is not made, and claim an extension of time the payee will now also be entitled to compensation for the period of the suspension e.g. de-mobilisation and re-mobilisation costs.
6. Clauses seeking to pre-allocate costs of an adjudication will be ineffective save for a few exceptions.
7. If the contract provides that if the payee becomes insolvent after the date on which the pay less notice (previously a withholding notice) must be given then the payer need not pay any sum due.
What should you do?
8. Unless prior action has already been taken, action is required NOW.
9. Any bespoke forms of contract entered into must be revised to reflect the New Act. If you’ve entered into a main contract before 1 October, but subsequently enter into sub-contracts after 1 October, different payment terms will apply.
10. It is essential that personnel, in particular accounts staff, are aware of the New Act, especially the need to give the required notices within the prescribed periods.
