The Construction Act 2009?8 May, 2009
This article looks at the proposed changes to construction contracts contained in the Local Democracy Economic Development and Construction Bill.
The Queen’s Speech 2008 promised the construction world an Act to amend the one we all know and, if not love, then at least live with – the Housing Grants Construction and Regeneration Act 1996. That Act gave us compulsory stage payments in construction contracts, fallback provisions if they were not included and invented “adjudication” as the rapid fire method of deciding disputes in 28 days while the job went on. It also meant you could stop work if you weren’t paid with an extension of time to cover the unpaid period – although that extension rather impractically ceased the moment money reached your account.
Now, in the darker recesses of the Local Democracy Economic Development and Construction Bill, we are promised amendments to all these provisions. There will be changes relating to the costs of adjudication, the right to additional time and money if you do have to suspend, and the invention of a “Payee’s Notice” that a receiving party can give if the payer doesn’t issue the notice he is supposed to.
But perhaps most significantly, the Bill removes the requirement that the contract must be in writing (although, strangely, it still requires the contract to have the adjudication provisions in writing). If there are no written provisions at all, then the Scheme for Construction Contracts applies, including the adjudication provisions.
In other words, a simple oral agreement that works be carried out, when, by whom, and for how much, would form a contract that could then be adjudicated. As many construction projects commence long before the written contract is agreed by the parties, let alone signed, it sounds like an excellent idea. And if you refer in your oral contract to written terms, that must help, mustn’t it?
Imagine the situation where a developer and a contractor meet over lunch to iron out final details to a project. There is extensive discussion which ends up like this:-
“So can you start next Monday?”
“Yes. The way business is at the moment, I could start this afternoon”
“Good, our standard terms, of course”
“You know we only ever contract on ours”
“What? Even with an empty order book – come off it! Have another pint”
And the conversation drifts off to the problems facing the English cricket captain and coach.
Work starts on the Monday and a few weeks later people start thinking about a first payment. But then – shock horror – the developer says that contractor has to stop work because the bank has pulled the plug on the funding.
The contractor – not surprisingly – cannot afford not to be paid, so starts adjudication proceedings based on the requirements in his standard terms, which specify Adjudicator Nominating Body A.
The developer responds that not only is there no contract, but if there was a contract, his terms and conditions would apply and they specify Adjudicator Nominating Body B, so the adjudicator who has just been appointed has no jurisdiction.
The question as to whether there is a contract is one which can be determined only by the Courts (unless the parties agree that the appointed adjudicator could decide it, an unreal proposition). As can be seen from the pub conversation above, it is not absolutely clear whether there is a contract at all, let alone whose terms apply.
If this Bill becomes an Act unchanged, many in the construction world may find they need to maintain a tight leash on their contract managers and directors to prevent “accidental” contracts coming about. Even a blanket disclaimer on every letter you send stating “No contract unless a Contract in Writing” may not save you from an “accidental” oral contract and being subject to the jurisdiction of an adjudicator you hoped you would never see again.
The Bill contains several provisions that could benefit the contracting community. The amendment to the suspension clause allowing contractors time and money not only for the period the defaulting party doesn’t pay you, but also for time and cost while you exercise your right to stop work, seems sensible, and the clause preventing a Referring Party in an adjudication being contractually obliged to pick up all parties costs of that adjudication seems fair.
But to allow oral construction contracts to be adjudicated, where the terms of that contract may be recalled by different parties in very different ways, might be counterproductive and result in more, not less litigation. Will there be a flurry of desperate applications to the courts to stop adjudications which have been started under the “wrong” provisions? Will the litigation bills of contractors and developers increase rather than reduce as the argument moves onto the question of what the supposed oral contract might actually have been?
There may be problems with limiting adjudication to written contracts, but there may be more and different problems if the Bill is unchanged and permits oral construction contracts. 2009 might be an interesting year for construction litigation.
This article first appeared in Construction Manager, 1 February 2009
Reviewed in 2015