UK: Construction - General Update

The Office of Government Commerce ("OGC") updated its Dispute Resolution Guidance in the first quarter of 2002.

The Guidance places fresh emphasis on the importance of forward planning, and has put into effect sound dispute avoidance and dispute management practices. It also identifies the distinguishing features of non-binding techniques of Alternative Dispute Resolution (ADR), such as mediation, and of binding ADR such as arbitration and expert determination.

The Government’s commitment to this approach enables disputes to be resolved constructively, in a non-adversarial manner, with disputes being disposed of more cost-effectively and quickly, thereby allowing both parties to share in the savings generated by sensible dialogue.

The Guidance can be found on the OGC website www.ogc.gov.uk

In July 2002, the Office of Government Commerce ("OGC") published the revised Guidance on Standardisation of PFI Contracts, which followed a two-year consultation period.

The main purpose of the Guidance is to assist with standardisation and thereby reduce bid costs. The Guidance deals with five main issues on the construction phase (pre-agreement of variations, "pay-when-paid" clauses, compensation events and relief events, uninsurable risks and insurance, and termination), and three main financial issues (refinancing gain, funding competitions for the debt financing of the project, and commitment letters from lenders).

This Act applies to almost all contracts that came into existence after May 2000. It was anticipated that the Act would mark the beginning of the end for collateral warranties in the construction industry, but there was a general reluctance to abandon warranties on the basis that the new Act had not been ‘tried and tested’. This appears to be changing, and there is evidence of a tentative move within the industry towards now using the Act to replace collateral warranties – watch this space!

The Enterprise Act received Royal Assent on 7 November 2002.

It covers a range of measures to enhance enterprise through strengthening the UK’s competition law framework, transforming the approach to bankruptcy and corporate rescue, and empowering consumers.

The main reforms in the Act are, inter alia, competition and consumer protection measures, and reforms to the corporate insolvency laws, including restricting the use of administrative receivership and making administration quicker, easier, fairer and more flexible, the provision of a modern bankruptcy regime to encourage entrepreneurship, and the abolition of the Crown’s preferential right to recover unpaid taxes ahead of other creditors.

The main implications for the construction industry will be the reforms of the insolvency laws, which have been designed to encourage responsible risk taking, while promoting a culture which rescues viable businesses, and also provide a greater degree of fairness and certainty to creditors, with the imposition of a tougher regime on irresponsible or reckless bankrupts.

Some of the major new standard forms that were published in 2002 include:

JCT 98 Practice Note 6 – Main Contract Tendering

JCT 98 Amendment 4 – Extension of time/Loss and Expense/Advance payment

JCT 98 New Domestic Sub-Contracts (DSC)

ACE Revised Agreements A(1), A(2), B(1), B(2), C(1) and C(2) (see article in this Update)

ACE New Short Form, Sub-Consultancy and Planning Supervisor’s Agreements

ICE Term Version Contract

IChemE Green Book – Third Edition

NEC Draft Term Service Contract

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