UK: Construction Act: Consultation on Amending the Scheme Starts

Last Updated: 14 April 2010
Article by Rupert Choat

Last November, Part 8 of the Local Democracy, Economic Development and Construction Act 2009 enacted changes to the Construction Act. The changes will only affect construction contracts entered into after Part 8 comes into force. (For an overview of the changes and their impact on standard forms and practices please click here . To see how the amended Construction Act would look please click here .) Part 8 will only come into force in England, Wales and Scotland if and when the relevant minister for each decides (while equivalent changes to Northern Ireland's legislation are likely to follow to maximise parity within the UK). Part 8's coming into force is unlikely to happen before the end of this year, to allow for public consultation on changing the statutory Scheme for England and Wales. The consultation started just over a fortnight ago. It is unclear if there will also be consultation on changing the Scheme for Scotland.

The Scheme's rules are implied into construction contracts that do not make certain basic provisions for adjudication and payments, as the Construction Act requires. Most contracts (including standard forms) will be amended to comply with the Act and therefore the Scheme will not apply to them. However, the number of contracts affected by the Scheme may still increase with Part 8's removal of the requirement for contracts to be "in writing"; with the Scheme's rules also being implied into construction contracts that are partly or wholly oral. Some of the Scheme's amendments are necessary as a result of Part 8's other changes. Further amendments arise from the government's stated aim of incorporating best practice from the industry's various bespoke adjudication schemes, thereby reducing the need for them.

The key proposed amendments to the Scheme are as follows:


The default payment rules are to remain payer-led. That is, the trigger for payments will be a payer-issued payment notice, which the payer has the opportunity later on to withhold against. There are, however, two key differences required by Part 8, reflecting changes that will apply whether or not the Scheme applies.

First, where the payer fails to give a valid payment notice on time, the payee's preceding payment application may qualify as the payment notice or, failing that (and more commonly when the Scheme applies), he may issue a payment notice of his own. The payer may still withhold against the payee's payment notice.

The key test for whether a payment notice or a "notice of intention to pay less than the notified sum" ("withholding notice", here, for short) is compliant will be whether it states the "basis" on which the stated sum is calculated. This concept, which derives from the existing Scheme, is largely untested. Pending clarification from the courts, unfortunately there will be uncertainty as to what is required for a payment notice or a withholding notice to specify adequately the "basis" on which the stated sum is calculated. One authority suggests that more detail is required than the existing requirement of stating the "ground" for withholding in a withholding notice (although the government suggested during Part 8's consultation that it would not increase the detail required in withholding notices). If that is correct, payers may find it particularly burdensome providing valid payment notices and withholding notices (and the different information needed for each, which in the case of the former may not be readily available).

Second, Part 8's elevating of the importance of payment notices (both those issued by payers and payees) will be reflected in the Scheme. If a valid payment notice is given specifying the "basis" on which the stated sum is calculated, in the absence of a withholding notice (for whatever reason) the sum stated in the payment notice is payable by the final date for payment without further ado. This differs from the present situation when it is sometimes still possible to dispute the sum due because, say, work was not done, was defective or had already been paid for. In such cases in future, absent a valid withholding notice, the payer must pay the sum stated in the payment notice with his recourse being to ensure he does not overpay when the next payment notice is given - assuming the final payment notice has not already been given and the payee does not in the meantime go insolvent.


For adjudication the proposed changes include:

  • Giving a referring party ten days from the date the adjudication notice was "sent" to refer the dispute to the adjudicator. The Scheme currently requires a referral to be made within seven days of the adjudication notice. In one case an adjudicator's decision proved unenforceable because a referral under the Scheme was made eight days after the adjudication notice.
  • Giving adjudicators seven days to correct their decisions, at the parties' request or even on their own initiative. There is presently no express provision for ensuring the parties are given a reasonable opportunity of being heard if an adjudicator is minded to change his decision (as there is under the Arbitration Act 1996, section 57).
  • Giving adjudicators a freestanding right to award interest even if there is, inter alia, no contractual provision (like courts and arbitrators).

The consultation also seeks views on bolstering the confidentiality of the adjudication process.

It seems that the government hopes to create a more attractive Scheme for parties to opt into, having declined to include in Part 8 a single mandatory adjudication procedure (which would have prevented most if not all of the Construction Act avoidance devices that will survive Part 8 coming into force). However, the Scheme's adjudication rules are already widely used - for example from 2003 the JCT adopted them for its widely used standard forms. Also, most industry schemes are very similar to the Scheme's rules and do not contain Act avoidance devices – unlike bespoke rules.

If and when Part 8 comes into force with an amended Scheme, it remains to be seen if the various industry schemes are simply amended in line with the Scheme's changes (rather than abandoned) and if bespoke rules continue to contain Act avoidance devices.

Comments on the consultation are due by 18 June 2010.

To see a redline indicating the proposed changes to the Scheme (for England and Wales) being consulted upon, please click here .

References: Consultation on Amendments to the Scheme

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 14/04/2010.

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