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Construction Contracts Bill 2008: will they ever get it right?

Practical Law UK Articles 8-383-9959 (Approx. 7 pages)

Construction Contracts Bill 2008: will they ever get it right?

by Jonathan Cope, Director, MCMS Ltd
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An article on the proposed amendments to the Housing Grants, Construction and Regeneration Act 1996, an extract of which was first published on MCMS Ltd's opinion blog.

Where are we now?

Well, it looks like we might finally be getting the amendments to the Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996) that the industry was promised by Gordon Brown over four years ago. After a review by Sir Michael Latham and two consultations, a draft Bill was eventually published by the Department for Business, Enterprise and Regulatory Reform (BERR) in July 2008 (July 2008 Bill) (see Legal update, Construction Act 10 years on: the Construction Contracts Bill 2008).
Many interested parties (such as the Society of Construction Law (SCL), the Technology and Construction Solicitors Association (TeCSA) and the Royal Institute of Chartered Surveyors (RICS)) hurried away to study the July 2008 Bill and prepare their comments.
They gathered at a conference organised by the Kings College Construction Law Association (KCCLA) and the Society of Construction Law (SCL) on the day before comments on the July 2008 Bill had to be submitted to BERR (see Legal update, Construction Contracts Bill consultation period ends with criticism of BERR's proposals).
Those of us expecting blood on the floor of the lecture theatre were pleasantly surprised (although no doubt some were disappointed) because everyone appeared to be broadly in agreement. Yes, it is good that the July 2008 Bill was at last in existence and yes, it is generally pointing in the right direction. However, the detail of the July 2008 Bill is not what the industry wants and, in my view, the drafting is likely to create more, rather than fewer, disputes.
So, what are my views on the July 2008 Bill?

Goodbye to "in writing", or is it?

The Construction Act 1996 applies to contracts "in writing", as defined by section 107. Like many parties, I agree that section 107 should be repealed: good riddance as far as I'm concerned!
However, it is proposed that the requirements of section 108 (that is, any provisions relating to adjudication) still need to be "in writing" and the section 107 definition of "in writing" lives on in section 115A of the July 2008 Bill.
I believe that current disputes over whether contracts comply with this comprehensive definition will be replaced with disputes over whether the requirements of section 108 are recorded in accordance with the same comprehensive definition. It strikes me that there is no need for a definition of "in writing" in the July 2008 Bill: reference to the simple definition in the Interpretation Act 1978 should suffice.
For more information on "in writing" under:

The adjudicator has made a mistake: what can we do?

The July 2008 Bill proposes that a statutory slip rule will expressly apply to Scotland, but not England and Wales. BERR has justified this omission on the grounds that the decision in Bloor Construction (UK) Ltd v Bowmer & Kirkland (London) Ltd [2000] BLR 314 makes an express rule in England and Wales unnecessary.
In my view, there should be an express statutory slip rule applying to all jurisdictions, particularly as:
  • The Court of Appeal could overturn the High Court’s decision in Bloor.
  • Many adjudicators practice in England and Wales, as well as Scotland, and it will make their jobs easier if the same statutory provisions apply to both jurisdictions.
  • Many parties also work north and south of the border.
For more information on the correction of errors under:

One party pays all the costs of the adjudication, regardless of the outcome

Construction contracts are sometimes amended to expressly provide for the referring party to pay the adjudicator's fees and the costs of the other side regardless of the outcome of the adjudication. These clauses are known as "Tolent clauses" after Bridgeway Construction Ltd v Tolent Construction Ltd (2000) CILL 1662.
The industry was in general agreement that such clauses should be outlawed unless the parties entered into an agreement after the issue of the notice of adjudication.
Section 4 of the July 2008 Bill introduces two new sections, sections 108A and 108B. The proposals contained in these sections go way beyond outlawing Tolent clauses. The proposals will allow:
  • The adjudicator to review the parties' agreement on the allocation of costs.
  • Courts to review adjudicators' decisions on costs.
Adjudication is supposed to be a fast track, temporarily binding process and it is unnecessary for the adjudicator to have such express powers.
My suggestion would be for this to be dealt with by the addition of text such as:
"An agreement which has the effect that a party is to pay the whole or part of the costs of an adjudication in any event is only valid if made after the issue of the notice of intention to refer a dispute to adjudication."
For more information on Tolent clauses under:

Paying the adjudicator

Section 4 of the July 2008 Bill introduces a new section, section 108C(1), which proposes that the parties will be jointly and severally liable for the adjudicator's fees where:
  • The adjudicator determines the matter in dispute.
  • The adjudicator’s appointment is brought to an end for reasons other than his "default or misconduct".
As there is no common understanding of what is meant by "default or misconduct", I can imagine this phrase will be at the centre of many disputes.
Why introduce a new phrase at all, when there is a common understanding of what "bad faith" means (and which is already referred to in section 108(4) of the Construction Act 1996)? The proposed sections 108C(2) and (3) of the July 2008 Bill go way beyond what is required. In my view they should be consigned to the same "round file" as section 107. Instead, I believe there should be a simplified version of section 108C, where only "bad faith" is referred to.
For more information on who is responsible for the costs of adjudication under:

Is the interim payment decision final and binding?

The industry is generally agreed that there should be a limit on when payment decisions can be challenged. Section 5 of the July 2008 Bill proposes an amendment to section 109 of the Construction Act 1996, which is intended to solve the problem of parties making interim payment decisions final and binding and not capable of being opened-up and revised by an adjudicator.
The proposed wording has failed to achieve what the industry wants: it only applies to payment decisions of third parties (not the parties to the contract), and it is worded so widely that it is arguable even final payments would fall into the definition in the July 2008 Bill.
Once again, in my view, this drafting problem could be solved with much simpler wording.
For more information:

What has happened to payment by reference to other contracts?

Section 6 of the July 2008 Bill proposes an amendment to section 110 of the Construction Act 1996, by introducing section 110(1A). This is aimed at outlawing payment by reference to other contracts.
My view is that the proposed wording fails to achieve its aim as it would not prevent "pay what paid", "pay if paid" or "pay what certified" clauses. We do not need a separate section, when the aim of the amendment could be achieved by amending section 113(1) of the Construction Act 1996.
For more information on payment by reference to other contracts see Practice note, Draft Construction Contracts Bill 2008: payments under construction contracts: What effect would the July 2008 Bill have on "pay-when-certified"?.

Do we need a new payment system?

Amendments to the payment provisions of the Construction Act 1996 are dealt with in sections 7 and 8 of the July 2008 Bill. Just as we were getting used to the system of payment notices and withholding notices, the July 2008 Bill proposes that they be replaced by a brand-spanking new regime.
These proposals have come in for some fierce criticism. I read sections 7 and 8, and then I read them again. And again. On about the fourth sweep I worked out the new payment regime. OK, so some of it makes sense, but who is honestly going to find it easy to work with a regime that provides:
  • For the contract to allow either the payer or the payee to provide the payment notice.
  • If the contract provides for the payer to provide the payment notice and he fails to do so, then the payee may provide a payment notice.
  • If the payee has already provided an application for payment then this becomes the payment notice. The payer must then pay the amount in the payment notice unless a further notice is issued stating that a lesser sum will be paid.
My view is that much simpler mechanism could achieve the same aim.
For more information on payment under:

Suspension

Finally, we get to the revised right of suspension for non-payment. You will be pleased to hear that I support the amendment set out in section 9 of the July 2008 Bill and have no comments to make. For once the proposals make more effective the right of suspension of performance for non-payment.
For more information on suspension under:

Will any of the changes happen?

Whether parliament can find time to debate the amendments is altogether another matter, and may depend on the priority given to the July 2008 Bill by the new business secretary, Lord Mandelson (or his successor).
End of Document
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Resource ID 8-383-9959
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Published on 10-Nov-2008
Resource Type Articles
Jurisdictions
  • England
  • Scotland
  • Wales
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