| Date | 20 April 2005 |
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| Judgment | Consultation into the payment provisions of the Housing Grants Construction and Regeneration Act. |
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| The Issue | Potential changes in the legislation following experience of the Construction Act since May 1998. |
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| Implication |
Responses to the consultation are to be returned to the DTI not later than 21 June 2005. |
printIn December of last year I examined the review which had been carried out under the chairmanship of Sir Michael Latham to investigate how the Construction Act had worked in practice since it was brought into operation nearly seven years ago. On 22 March 2005 the DTI and the Welsh Assembly issued a joint consultation document making proposals based on that review and seeking comments. Sir Michael's review found that the Construction Act was generally working well but some improvements would be helpful if means could be found to deliver them without adverse impact on other parties or upon other elements of the payment process. In this article I examine the payment provisions of the consultation document and in a subsequent article I will look at those in relation to adjudication. The overall objective of the consultation in respect of payment matters is to improve the ability of the parties to a construction contract to reach agreement on what should be paid and when, or where they cannot agree, to make an informed referral or response in adjudication. One of the key points raised in the consultation is whether the requirement to serve a Section 110(2) notice should be removed. Section 110(2) requires a paying party to give a notice not later than five days after the date on which a payment becomes due under the contract specifying the basis for and the amount of the payment proposed to be made. The difficulty with the payment notice is that failure to serve it carries no sanction against the paying party and this has meant that the notice is frequently ignored. The consultation asks whether it would be wise to remove the payment notice requirement from the Act. If that were as far as the question went, the answer would probably be a resounding no as the underlying aim of the statutory provision (that paying parties should set out clearly what they intend to pay and what they refuse to pay rather than leaving everyone in the dark) remains sound. However, the consultation does not propose that the payment notice should be dropped with nothing more required. Instead it is proposed that the definition of an 'adequate payment mechanism', as set out in Section 110(1) of the Act, should be expanded to include terms on what amounts constitute the payment under the contract (it is not evident what the drafters of the consultation intend by this); when a payment is to be assessed under the contract; how the amounts are to be determined; the period of time that should elapse from the 'assessment date' before the final date for payment; and what information is to be communicated between the parties. Of course it is not clear how these objectives might be achieved in practice. At first sight what is intended could go some way towards filling the gap that would be created by the absence of the payment notice. Nevertheless, the proposal suggests nothing more than an obligation upon the paying party to set out the amount it understands to be due under the contract. As it is not suggested there will be any sanction upon a party who fails to provide any prescribed detail it is difficult to see how the proposed amendments improve matters at all. Since there is no proposal to amend the Scheme on this point, the consequences of a non-compliant contract will not alter. Next the consultation document discusses the idea that an application process might be appropriate for inclusion in the Construction Act. At present construction contracts do not prevent parties from submitting applications for payment and of course it is common practice in the industry for this to happen throughout the supply chain. The consultation invites agreement that the application for payment should not create an entitlement to the amount applied for. That being the case, little would seem to be achieved by the amendment proposed if failure to correctly operate the contractual mechanism creates nothing more than the right to refer a dispute to adjudication. The consultation also considers redefining the content of withholding notices under Section 111 of the Act. Withholding notices are legally required only when making a set-off from amounts otherwise due under the contract and currently the legislation makes no requirement that the withholding notice should give details of the amounts remaining to be paid. It is proposed that the legislation should be amended to correct this. Provided a payment notice is issued the existing legislation already achieves this objective, and therefore this proposal is unlikely to add much to the present situation. However, a more important suggestion in relation to withholding concerns the prohibition of cross contract set-off except where an equitable right to set-off exists. This would be welcomed by many subcontractors, and prevent disputes on one contract affecting progress and relationships on others. Pay when certified clauses have been considered and it is proposed that whilst "pay when certified" would be allowed in limited circumstances, "pay what certified" would, in effect, only be acceptable where the main contract certificate specifically identifies the amount due to the subcontractor. In practice, this would limit its use to nominated subcontractors and management contracts. The other main point covered within the consultation is the suggestion that, where suspension for non payment has occurred, the reasonable costs of that suspension and the subsequent remobilisation should be reimbursed. In the short space of this article, it is not possible to cover in full all the considerations which arise from these proposals and reference should be made to the DTI website www.dti.gov.uk for the full text of the consultation, and your chance to respond to it.
CJ-0515
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© Brewer Consulting |
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