The amendments to the Construction Act will impact on firms of varying size across the construction sector, with firms who work as sub-contractors benefitting the most from the changes which are expected to come into force in early 2011.
The amendments address some of the avoidance tactics established since the 1996 Construction Act, with the key issues of adjudication costs and the requirement for written contracts changing significantly.
For subcontractors, the aim is to speed up the settlement of payment disputes. They will benefit in two ways: first, contracts partly in writing as well as oral contracts will now be covered by the Act. This will remove the opportunity for the other party to challenge the adjudicator’s authority, arguing that the contract is not in writing. Second, the financial burden of paying the other party’s adjudication costs has been addressed.
In the past, whoever referred a dispute to adjudication would be required to cover the adjudicators full cost as this was the arrangement in many subcontracts. The amendments will mean that there can be no agreement between the parties in respect of adjudication costs until after the notice of adjudication has been issued. At this stage there is no pressure to accept the arrangement to ‘get the job’ and it is unlikely that anyone would agree to pay the other’s costs in the heat of a dispute.
The 1996 Construction Act allowed contractors to down tools in cases of late payment, provided that notice was first served as required by the contract or the Scheme. The 2009 amendments to the Act now give the right to reimbursement of costs incurred. This could include demobilisation and remobilisation costs, as well as the costs of working the extended period.
With the amendments coming into force early next year, there should also be a positive change to the late payment regime. It will no longer be acceptable to rely on a certificate issued on the main contract to trigger payments to subcontractors. This means that ‘pay when certified’ will disappear, along with retention releases to subcontractors that rely on the issue of the Certificate of Making Good on the main contract.
The amendments to the Construction Act go a long way to addressing some of the imbalances facing sub-contractors, but there is a real need to be aware of the new benefits and procedures, and to check that the T&Cs of a contract do not try to avoid the provisions of the Act. Hopefully the amendments brought in will make for a fairer, more balanced business environment, making it easier for small firms to refer disputes to adjudication.
Ken Tracey is commercial advisor (commercial, contracts and legal) at the Electrical Contractors Association