| Date | 24 November 2004 |
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| Judgment | Sir Michael Latham's review of the Housing Grants Construction and Regeneration Act, September 2004 |
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| The Issue | Potential changes in the legislation following experience of the Construction Act since its coming into force in May 1998. |
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| Implication |
The DTI will initiate an industry consultation early in 2005 with a view to making appropriate changes to the legislation. |
printIn March of this year the Chancellor announced in his budget statement that the Government would review the operation of the adjudication and payment provisions contained within the Housing Grants, Construction and Regeneration Act to identify what improvements could be made. Following that announcement the Department of Trade and Industry requested Sir Michael Latham to chair a review group that would produce a report on how the Act has worked in practice since it was brought into force six years ago. That review has just been published and it will form the basis of a consultation with the industry that the DTI are expected to put in place early next year. It remains to be seen whether this will result in any changes to the statutory provisions. It is clear however that the review has highlighted some areas of growing concern that will require an amendment to the legislation if they are to be acted upon. In the space available it is not possible to comment upon all of the issues raised in the review, but the main points raised in connection with adjudication are set out below. Next week I will address the issues which have been raised in connection with the payment provisions of the Act. Firstly the review recommends a reassessment as to whether disputes arising under PFI contracts and disputes involving residential occupiers should be brought within the ambit of the Act. Curiously although this appears to be one area on which the review group was largely in agreement, the construction minister, Nigel Griffiths MP, has already indicated that he will not consent to those points being raised within the consultation process. Equally the construction minister has indicated that he will not presently consider that the process plant industry should be brought within the ambit of the Act. Secondly, the review considered the requirement for construction contracts to be evidenced in writing. Recently the Court of Appeal held this to mean that all of the terms of the agreement required to be in writing for the Act to apply. Given the propensity of the construction industry to make such a hash of reducing all of its contracts properly to writing this is a serious issue which needs to be addressed. Plainly there will be great difficulty in getting agreement on how such an amendment should be drafted. Some industry bodies believe that the Act should apply to contracts in writing only. Others believe that oral contracts should be included. Still others sit somewhere on the fence. A third point raised concerns the question of the costs of adjudication. It will be remembered that in the Bridgeway v Tolent case the court upheld a contract provision that required that the referring party should pay both parties' costs of the adjudication whether it won or lost. Provisions such as these are written into contracts with the intention of limiting the effect of adjudication. Quite correctly, the review group has called for changes to the legislation to outlaw such clauses. Next the review considered the numerous standard and non standard industry adjudication procedures which are used in the market place, many of which provide onerous requirements designed to reduce access to adjudication and its effectiveness. The review group commented that the Act should be extended to outlaw provisions which are considered to be unacceptable, by tightening up on the minimum requirements for compliant adjudication procedures. Another important point raised in the review concerns jurisdictional challenges. When the Construction Act was brought into force few anticipated the extent to which the jurisdiction of adjudicators would become a legal battleground. At present adjudicators have to decide whether or not to continue with any adjudication when a challenge to their jurisdiction is made, but they cannot rule upon any issue of jurisdiction. The review group was unable to agree on how this issue should be addressed. Some industry bodies have made it clear that they consider that adjudicators should be given the power to rule upon their own jurisdiction in the way that an arbitrator can. Others want limited powers given to the adjudicator whereby he or she may be able to decide certain types of jurisdictional challenge. Others want to preserve the status quo such that they can continue to raise jurisdictional challenges when appropriate to defeat adverse decisions. Finally, it was pointed out that some adjudication procedures have been drafted such that the adjudicator is obliged to order that monies held to be due to one party should instead be paid into a stakeholder account until the dispute is finally resolved. The review group has recommended that such provisions be treated as unlawful. The full text of the report by Sir Michael Latham's review group can be found on the Department of Trade and Industry's website. Next week I will consider the recommendations of the review group in relation to the payment provisions of the Act.
CJ-0447
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