UK: Construction Act - Consultation Fatigue Sets In

Last Updated: 4 February 2010
Article by Jane Hughes
The Local Democracy, Economic Development and Construction Act 2009 (the New Construction Act) was enacted on 12 November 2009. Part 8 made the long awaited changes to the Housing Grants Construction and Regeneration Act 1996 (the Construction Act).

The changes are not yet in force. Before they can be brought into effect, consequential changes need to be made to the Scheme for Construction Contracts. The Department for Business Innovation and Skills says that it "hopes" to carry out consultations on the consequential changes in "early 2010". However, as a general election looms, the timing of any such consultation and indeed whether it takes place at all is uncertain.

This uncertainty follows 5 years of consultations over amendments to the Construction Act and an act that works properly for the benefit of the construction industry as a whole seems as far away as ever.

The Changes

The New Construction Act makes a number of changes, which can be divided into two categories, namely changes to adjudication procedure and changes to payment procedures.

1. Changes to adjudication procedure

a. The removal of the requirement for contracts to be in writing.

The current requirement for contracts to be in writing for the adjudication provisions of the Construction Act to apply is to be abolished and the New Construction Act will apply to contracts whether they are oral, written or partly oral and partly written.

This new requirement is a reaction to the case of RJT Consulting Engineers Ltd -v- DM Engineering (Northern Ireland) Ltd [2002] BLR217 where the Court of Appeal decided that all the terms of the contract must be in writing for it to satisfy the requirement. This in turn led to numerous jurisdictional challenges on the basis that the contract was not in writing.

While there may be a consequential reduction in jurisdictional challenges, there is likely to be an increase in adjudicators' workloads generally as they will have to deal with more arguments over contents and terms of contracts.

b. Adjudication provisions must be in writing

The right to refer a dispute to adjudication and the basic requirements of the adjudication procedure will still have to be in writing and if they are not, then the Scheme for Construction Contracts will apply.

This will lead to greater clarity and easier references to adjudication.

c. Power to make corrections

In a straightforward amendment, the contract must contain a written provision permitting the adjudicator to make typographical or clerical amendments and if it does not, the Scheme will apply.

d. Allocation of costs

The only agreements that the parties will be able to make as to the allocation of costs are as follows:

  • The parties will be able to agree in the contract that the adjudicator has the power to allocate his fees and expenses between them.
  • The parties will be able to agree the allocation of costs in writing after notice of intention to refer to adjudication.
  • The provision does not extend to the allocation of the parties' own costs and this provision will outlaw the contractual abuse whereby any party bringing an adjudication was made liable for the responding parties' costs as well as its own.

2. Changes to payment procedures

a. The new payment regime

The new payment regime is the most significant part of the New Construction Act.

The existing payment and withholding notices are abolished and in their place two new notices are introduced, the payment notice and the counter-notice. The concept of the due date and the final date are retained.

Not later than 5 days after the due date the paying party or the payee must give a notice specifying the sum the payer or payee considers to be due and the basis upon which that sum is calculated. A specified person may give the notice on the payer's behalf, but not the payee's behalf.

If the payer is required to give notice but does not do so, the payee may issue it. If the payee issues a notice, the final date for payment is postponed by the number of days "late" the notice is, i.e. the number of days from the date on which the notice should have been given but was not.

If the payee has however already submitted a payment application then that application will be regarded as the payee notice and there is no need for the payee to serve a second notice.

If the payer does not want to pay the notified sum in full it must serve a counter-notice not later than the prescribed period and this notice must set out the sum that the payer considers to be due and the basis of the calculation of that sum. The payer must then pay the amount it considers due before the final date for payment.

It is immaterial for the service of both notices that any payment or sum to be withheld may be zero.

Where an adjudicator determines that a further amount is due then that sum must be paid not later than 7 days after the later of the adjudicator's decision or the date which would have been the final date for payment.

b. Payment by reference to other contracts

It will be prohibited to make payment conditional upon the performance of obligations under another contract, or a decision by any person as to whether obligations under another contract are being performed. This prohibition does not apply where the contract is an agreement for the carrying out of construction operations by another party under the obligations or on that other party, for example management contracting.

c. Due date for payment

It will be prohibited to determine the due date for payment by reference to the giving of any payment notice.

d. Insolvency

The New Construction Act limits the scope of Melville Dundas -v- George Wimpey [2007]UKHL18. In that case the House of Lords decided that a party could withhold in the absence of a withholding notice when the payee became insolvent after the date for serving the notice but crucially where the contract provided that no money would be paid in the event of insolvency. The New Construction Act will not require payment if the contract provides that no money is to be paid in the event of insolvency and the payee has become insolvent after the time limit for serving a counter-notice.

e. Suspension

The existing right to suspend will be reinforced and expanded, and there will be an ability to suspend all or part of a party's obligations. This in particular will give a contractor greater flexibility in responding to non-payment. The suspending party will be entitled to be paid its reasonable costs and expenses reasonably incurred in respect of the right to suspend, and there will also be an entitlement to an extension of time in respect of the suspension.


Many of the amendments contained in the New Construction Act are sensible, for example the addition of the slip rule and the rules governing adjudicators' costs. The amendment to the requirement for the contract to be in writing will expand the remit of adjudicators and allow them to consider contractual issues.

The most far reaching amendments however are the changes to the current regime of payment and withholding notices. The new rules will be much more complicated and are not easy to understand. They will be difficult for small contractors in particular to operate in the absence of regular legal advice. Whether they will be an improvement on the current regime seems unlikely.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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