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Draft Construction Contracts Bill - how will the changes affect you?

01 August 2008

The proposed amendments to the Act have now been issued by DBERR. They are due to progress through parliament this session, but the key question is are they as anticipated and do they cover the recommendations made for change?

The answer is largely yes. Although some in the industry will argue that they do not go far enough, they are representative of the latest 2007 Consultation.

In March 2004 the government first announced a review of the construction provisions in Part 2 of the Housing Grants, Construction & Regeneration Act 1996. There have been various consultations and reports (most notably the Latham Report) since the Act came into force, discussing amendments, but up until now, no concrete action.

So, what do the amendments address? The proposals are:

  1. Writing
    One of the key provisions of the Act that has attracted much criticism is the requirement that a Construction Contract be “in writing” before it was governed by the Act. Whilst that has been removed, the Bill still requires some provisions to be in writing. 
  2. Adjudication Costs
    Any agreement between the parties concerning the allocation of the costs relating to an adjudication is ineffective unless made after the appointment of the adjudicator and in writing. 
  3. Interim Payment
    Any term of a contract stating that interim payment decisions are binding is unenforceable.
  4. Payment by reference to other contracts will be prohibited
    This is an extension of the so called “pay when paid” provision which was outlawed by the Act, and provides that the determination of the amount due under a contract cannot be linked to the amount forthcoming in respect of that work from another party up or down the chain, for example from the employer to the contractor.
  5. Payment Notices
    There are some changes to the notice requirements but these are not as substantive as had been hoped and still require both a payment and a withholding notice to be given.
  6. Suspension
    Where a party suspends work due to non payment there is now a requirement that they be paid all costs associated with that, such as demobilisation and remobilisation costs (which previously could be removed by the contract wording).

The current Bill issued in July (which will only apply to contracts that come into force after it), seeks comments by 12 September and as outlined in the Queen’s Speech is due to be given approval later this session. We will of course update you on any changes made as a result of comments received.

Are any of the issues in this article giving you a headache? If so, we want to know

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Charissa Shears

Associate
T: 08700 86 6742
I: +44 (0)1489 61 6742
E: charissa.shears@shoosmiths.co.uk