Whether a contract is classified as a "construction contract" is an important issue for those involved in the building industry. The reason for this is that if a party's contract is a "construction contract" for the purposes of the Housing Grants, Construction and Regeneration Act 1996 as amended (the Construction Act), the statutory provisions contained in the Construction Act and the Scheme for Construction Contracts (the Scheme) will be implied into the contract, taking effect as if they were express terms, if the provisions are not addressed adequately by the terms of the party's contract.
The mandatory provisions include the right to stage payments, the statutory payment mechanism (which includes when applications and payments must be made and when payment and pay less notices must be served) and the right to refer disputes to adjudication. Whether or not a contract is a "construction contract" under the Construction Act depends upon whether or not the works performed under it are "construction operations".
In the recent case of Universal Sealants (UK) Ltd (t/a USL Bridgecare) (USL) v Sanders Plant and Waste Management Ltd , the Technology and Construction Court (TCC) confirmed that the delivery and pouring of concrete is not a "construction operation" for the purposes of the Construction Act. Therefore the party's contract for the supply of the concrete was not a "construction contract" and the right to refer a dispute to adjudication was not available to the party.
A key issue in this case was whether Sander's concrete pouring operations constituted "installation" for the purposes of s105(2) (d) of the Construction Act. If it did, then Sander's activities would amount to "construction operations".
Section 105(2) provides:
"The following operations are not construction operations within the meaning of this Part;
"(d) manufacture or delivery to site of:
(i) building or engineering components or equipment,
(ii) materials, plant or machinery, or
(iii) components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or for security or communications systems,
except under a contract which also provides for their installation"
Accordingly contracts that provide for the "manufacture or delivery to site of …materials" and no more are not contracts for the performance of "construction operations" and are therefore not "construction contracts" for the purposes of the Construction Act.
However contracts that provide for "installation" in addition to "manufacture or delivery to site" are contracts for the performance of "construction operations" and are (subject to any other relevant exemptions) "construction contracts" for the purposes of the Construction Act.
The TCC Decision
Here, the party's dispute arose out of a contract for the supply of concrete by Sanders to USL (the Contract). After establishing the terms of the Contract agreed between the party's and hearing evidence as to what happened on site - which included an inconclusive debate as to whether the concrete was poured under the direction or in line with instructions from USL - the Judge held that Sander's activities were not construction operations and the Contract between the party's was not a construction contract for the purposes of the Construction Act.
The Judge noted that concrete was an unusual material in this context because, once it is mixed, wet concrete starts to set. In the case of concrete, the Judge reasoned, the act of delivery and pouring amount to the same thing. Installation implies some work is done to the materials after delivery. The pouring of the concrete was part of the delivery it, it was not an additional installation activity.
The Judge used the analogy of the supply of bricks. The manufacture and delivery of bricks to a site - without more - is clearly not a construction operation. However, if the supplier's works also included the laying of the bricks then this would be an additional "installation" activity and the works would amount to "construction operations" for the purposes of the Construction Act.
Accordingly, the Judge refused summary judgment to enforce the adjudicator's decision, finding that the adjudicator lacked jurisdiction because the Contract did not contain a right to refer the dispute between them to adjudication whether expressly or impliedly by the Construction Act. This was because Sander's works pursuant to the contract were not "construction operations" and the contract was not a "Construction Contract".
Previous case law
Numerous judgments have related to the issue of whether or not activities are "construction operations" under the Construction Act, many focusing on the extent to which the relevant operations constitute the "construction, alteration, repair, maintenance, extension, demolition or dismantling of buildings, or structures forming, or to form, part of the land (whether permanent or not)" as is required by Section 105(1)(a) of the Act. [emphasis added]
Previous cases considering "construction operations" under the Construction Act include the following.
- The assembly of industrial plant and similar features on one site and fixing to the land on a second site did constitute construction operations because the plant was "to form" part of the land once installed at the second site. The TCC also found the erection of scaffolding was a construction operation.
- The maintenance and repair of heating systems that had been installed by others did constitute construction operations.
- The supply and bolting to the floor of shopfitting items (display units) did not amount to "construction operations" because the items did not form part of the land. The display units were bolted to the floor only to ensure their stability and could be moved to suit seasonal stock levels.
- Groundworks, including foundation works, and drainage works do not fall within the exemption in section 105(2)(d) and do amount to construction operations.
- Activities such as preparing fabrication drawings, off-site fabrication and delivery to site are construction operations.
Each contract will of course turn on its own wording but these cases provide useful indications of the approach that will be taken by the TCC.
If the party's to a delivery only contract in respect of building materials wish to take the benefit of the rights contained in the Construction Act and Scheme, then their contractual terms must expressly provide for these.
Conversely, as the latest TCC judgment has shown, any supplier of materials that wishes to avoid inadvertently incorporating the statutory provisions into its contract should be careful to ensure that its operations go no further than "delivery" of the materials, so as not do anything that could constitute "installation" for the purposes of the Construction Act resulting in its activities being classified as "construction operations".
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