Changes to the Construction Act: Payment certaintyuncertain terms - - PowerPoint PPT Presentation
Changes to the Construction Act: Payment certaintyuncertain terms Craig J Enderbury BSc DipArb MACostE FCIArb Director Hill International (UK) Ltd
Director – Hill International (UK) Ltd
To understand the amendments to Housing Grants Construction and Regeneration Act 1996 by virtue of the
The Local Democracy, Economic Development and Construction Act 2009
Latham Report 1994 “Constructing the Team” identified;
consuming
together with the Scheme for Construction Contracts (E&W) Regulations 1998.
Housing Grants, Construction and Regeneration Act 1996
s104 Definition of Construction Contract s105 Meaning of Construction Operations s106 Residential occupiers s107 Construction Contract to be in writing s108 Right to Adjudicate s109 Entitlement to stage payments
s110 Payment notices s111 Withholding s112 Right to suspend works for non-payment s113 ‘Pay when Paid’ became ineffective
LDEDCA Part 8 Construction Contracts The LDEDCA contains the construction provisions to amend Part 2 of the HGCRA 1996 ('the Construction Act').
improving:
HGCRA Contracts in Writing provisions 107(2) Contracts are in considered to be in writing if a) whether signed or not b) exchange of communications c) evidenced in writing 107(3) Terms – by reference
107(4) Terms recorded by a third person 107(5) Exchange in Adjudication/Arbitration – ‘Doctrine
HGCRA – s.107 contracts in writing problems
in writing.
adjudication to enforce payment
RJT Consulting v DM Engineering - “What has to be evidenced in writing is literally, the agreement, which means all of it, not part of it”.
HGCRA – s.107 problems LDEDCA - solution
evidenced in writing
evidenced in writing – by design or circumstance
required to be evidenced in writing – may be;
using adjudication to enforce payment
LDEDCA – s.107 solution Potential issues/benefits
required to be evidenced in writing – may be;
adjudication to include
statements.
statements.
adjudication stage introduced
potentially required
HGCRA Provisions
108(1) Right to refer disputes to Adjudication 108(2) The contract shall provide: (a) Right to refer a dispute at anytime (b) 7 day timetable for the appointment of Adjudicator (c) 28 days for Adjudicator to decide (longer if agreed) (d) 14 day extension if agreed to by referring party (e) Adjudicator to act impartially
(f) Adjudicator to take initiative in ascertaining Facts & Law 108(3) Decision binding on the parties until Arbitration / litigation 108(4) Adjudicator not liable 108(5) Scheme is the default provision for non-compliance
Adjudication Timetable – No change
Response and any other submissions
Response and any other submissions
LDEDCA Amendments to Adjudication Three changes to the HGCRA regime:
adjudicators costs
HGCRA – s.108 problems LDEDCA - solution
his decision
correct decision
“The contract shall include provision in writing permitting the
adjudicator to correct his decision so as to remove a clerical or typographical error arising by accident or omission.”
HGCRA – s.108 adjudication problems Clauses that require the referring party to pay:
Irrespective of the decision of the adjudicator
‘Tolent’ Clauses Bridgeway Construction v Tolent Construction : Notwithstanding Clause 15(a) either party may refer any dispute or difference arising under or out of the contract to Adjudication in which each party shall be responsible for their individual costs in referring or responding to the Adjudication, however, should the Sub-Contractor refer a dispute to Adjudication which is later rejected in whole or in part by the Adjudicator then the Sub-Contractor shall meet all the costs of the Adjudication including all costs sustained by the Company in responding to the claim.
The decision of the Adjudicator shall be binding on both parties until a final decision is reached by Arbitration or until the parties agree that the decision
Judge held – There should be no interference with the Contract. The mere fact that Bridgeway were disgruntled did not entitle Judge Mackay to say "Well these clauses are a bit unfair. Let's change them".
However this was changed by the case of: Yuanda (UK) Co Ltd vs. WW Gear Construction Ltd “If the effect of the contract drafting is to "clearly discourage a party from exercising its right to refer disputes to adjudication", then it must be for consideration whether a provision so drafted is contrary to the requirements of HGCRA” “For these reasons, I consider that clause 9A would in practice limit
Yuanda's freedom to refer a dispute to adjudication at any time and, in some circumstances – such as in a dispute involving a relatively small amount of money – to deprive it of a remedy altogether. I must therefore respectfully disagree with the conclusion… in the Tolent case, at least on the basis of the wording of clause 9A in this particular contract”
HGCRA – s.108 problems LDEDCA - solution
costs
Adjudicator to allocate his costs, or
allocation after the notice
LDEDCA – s.108 solution Potential issues/benefits
Adjudicator to allocate his costs, or
allocation after the notice
remaining barriers to adjudication
‘water tight’
the new legislation
prevail in the end
LDEDCA Section 108 (A) Adjudication costs: effectiveness of provision
(1) This section applies in relation to any contractual provision made between the parties to a construction contract which concerns the allocation as between those parties of costs relating to the adjudication of a dispute arising under the construction contract. (2) The contractual provision referred to in subsection (1) is ineffective unless—
(a) it is made in writing, is contained in the construction contract and confers power on the adjudicator to allocate his fees and expenses as between the parties, or (b) it is made in writing after the giving of notice of intention to refer the dispute to adjudication.
LDEDCA Section 108 (A) Does it work?
“Either party may refer any dispute or difference arising under or out
responsible for their individual costs in referring or responding to the Adjudication, however, should the Sub-Contractor refer a dispute to Adjudication which is later rejected in whole or in part by the Adjudicator then the Sub-Contractor shall meet all the representation
costs legal or otherwise of the Contractor in responding to the claim. The Adjudicator shall have the power to apportion his reasonable fees and expenses between the Parties at his discretion. The decision of the Adjudicator shall be binding on both parties until a final decision is reached by Arbitration or until the parties agree that the decision
Notice of intended suspension if a notice to withhold payment not given Period as stated Assessment Interval
Due Due Due Due Date Date Date Date S.110 S.110 S.110 S.110 Payment Notice Payment Notice Payment Notice Payment Notice Final Date Final Date Final Date Final Date for Payment for Payment for Payment for Payment
e.g. 30 days minimum 7 days Application Application Application Application for payment for payment for payment for payment Date by which “Notice of payment to be made” (5 days max) Employer pays
Right to suspend Right to suspend Right to suspend Right to suspend performance performance performance performance
(until payment made)
Performance may be suspended if payment in full has not been made
S.111 S.111 S.111 S.111 Withholding Notice Withholding Notice Withholding Notice Withholding Notice
Suspension period
S111(3) (Y2.3) minimum 7 days “Notice to withhold payment” given not latetrthan Employer pays Suspension period Key Time period fixed by Construction Act Time period defined in contract or by Scheme/Act in default
HGCRA – s.S110 Payment Problems
HGCRA – s.110 problems LDEDCA - solution
notice - none
payment is due?
by Payer or by a specified person
Payment is issued, Payee may issue a Notice in Default stating what is due - S110B (2).
in accordance with the Contract, the application is considered the payee’s ‘Notice in Default’- S110B (4).
Notice in Default may be considered as the amount DUE.
Notice of intended suspension if a notice to withhold payment not given Period as stated Assessment Interval
Due Due Due Due Date Date Date Date S.110 S.110 S.110 S.110 Notice Notice Notice Notice Final Date Final Date Final Date Final Date for Payment for Payment for Payment for Payment
e.g. 30 days or 30+ days ‘Payee Notice in ‘Default’ minimum 7 days Application Application Application Application for payment for payment for payment for payment Date by which “Notice of payment to be made” (5 days max) Employer pays
Right to suspend Right to suspend Right to suspend Right to suspend performance performance performance performance
(until payment made)
Performance may be suspended if payment in full has not been made
S.111 S.111 S.111 S.111 Notice Notice Notice Notice
Suspension period
S111(3) (Y2.3) minimum 7 days “Notice of intention to pay less payment” not later than S110(B) On failure to give Notice Payee application may become ‘Payee Notice in Default’ or Payee may issue NID (5+ days) Employer pays Suspension period Importantly Loss and Expense is now recoverable for period in pursuance/consequence of suspension Key Time period fixed by Construction Act Time period defined in contract or by Scheme/Act in default
LDEDCA – s.110 solution Potential issues/benefits
representative - S110A (1a)
may issue a Notice stating what is due - S110B (2).
the payee’s ‘Notice in Default’
certain
busy at certification periods
that MC may allow payments to go through ‘self-cert’ process
Notice in Default may be considered as the amount DUE. to go through ‘self-cert’ process and correct using 2nd S111 notice provision
late in the process
HGCRA – s.111 Withholding Payment problems
defend to a claim via abatement defence
HGCRA – s.111 problems LDEDCA - solution
1. Confusion as to number of Notices to be issued. 2. Abatement defence
‘notified sum’ in s.110A notice
via a ‘notice of intention to pay less‘ - s.111(3)
sum’
LDEDCA – s.111 solution Potential issues/benefits
the ‘notified sum’ in s.110A notice
sum’ via a ‘notice of intention to pay less‘ - s.111(3)
that MC may allow payments to go through ‘self-cert’ process and correct using 2nd notice provision
payment cycle
sum’ payment cycle
HGCRA – s.112 Suspension problems
HGCRA – s.112 problems LDEDCA - solution
suspension period only
expense
1. Right to suspend ‘any or all of’ his obligations – s112(1) 2. Right to recover ‘reasonable costs and expenses’ - s112(3A). 3. Right to claim an extension of time for any period “in
pursuance of or in consequence
S112(4).
HGCRA – s.113(1) ‘Pay when Paid’ problems
therefore:
HGCRA – s.113 problems LDEDCA - solution
dates
under another contract, or
contract have been performed
type contracts – s110(1C)
HGCRA – s.113 payment on insolvency problems
payment is to be made in absence of s111 withholding notice Amendment confirms House of Lords decision in…
Melville Dundas (in receivership) v George Wimpey UK
HGCRA – s.113 problems LDEDCA - solution
insolvency
notified sum if:
payment in the event of Payee insolvency, and
after the prescribed period in
section 111(5)(a) - date of notice of intention to pay less
In summary Key Changes
What now?
this date – contracts before this date subject to old HGCRA
Hill International (UK) Ltd 6160 Knights Court Solihull Parkway Birmingham Business Park Birmingham B37 7WY Tel: 0121 717 5770
craigenderbury@hillintl.com Craig J Enderbury BSc DipArb MACostE FCIArb Director