| Date | 25 January 2006 |
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| Judgment | Review of the DTI consultation into the operation of the HGCRA, published 16 January 2006 |
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| The Issue | Potential amendments to the Construction Act to improve payment practices in the construction industry. |
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| Implication |
The DTI intends to issue a final package of proposed amendments to the Act for further consultation in the Spring 2006. Thereafter, amendments to the Act may be implemented later in the year. |
printIn September 2004 Sir Michael Latham published his review of the payment and adjudication provisions of the HGCRA. The review was put to the industry in March 2005 as a consultation document, and it has taken till January 2006 for the DTI to publish its analysis of the results of that consultation. The wheels of change grind slowly - the DTI analysis tells us little more than we knew 16 months ago. In short, there are some issues of importance to be addressed but, as far as the key points are concerned, we are still none the wiser as to how this is to be done. The analysis contains a series of proposals which will be developed in detail over the coming months in advance of further consultation, before any changes to the Act are introduced. One of the key points is concern over the requirement for construction contracts to contain an ‘adequate payment mechanism’. Some 78% of the respondents thought that this requirement is too vague. Moreover, the requirement upon the paying party to issue a section 110(2) payment notice doesn’t help if the contract fails in the first place to prescribe with sufficient clarity what is payable. To make matters worse, the payment notice is frequently ignored. How is all this to be sorted? Well, here it gets a bit fuzzy. The ‘adequate payment mechanism’ may require to be given more statutory definition. Quite how, we are not told. Respondents were generally in favour of proposals that construction contracts should be expressly required to include terms stating; a) what amounts constitute the payment under the contract, b) when a payment is to be assessed under the contract, c) how the amounts are to be determined, d) the period of time that should elapse from the point of assessment before the final date for payment, and e) what information is to be communicated between the parties. There may also be a requirement for ‘certification of the sum due’, but no further explanation of that proposal is given. There are endless varieties of payment mechanism out there in the real world. Cost reimbursable, measurement and valuation, milestone payments, etc, etc, with innumerable variations on every theme. There is little prospect of writing a prescriptive ‘one size fits all’ definition for all this. If the requirements for an ‘adequate payment mechanism’ are made more prescriptive, it may be assumed however that there will be more non-compliant contracts. Since there is no proposal to amend the Scheme in this area, the consequences of a non-compliant contract will not alter. Additionally, there appears to be no proposal to place any further sanction upon a party who fails to provide the requisite information concerning payment. It is difficult to see therefore how any of this improves matters from the current statutory provisions. The analysis also concludes that there is a ‘strong case to remove the requirement for a section 110(2) notice’. As I said following the September 2004 review, it is surprising that steps cannot be taken to strengthen the notice requirement, rather than simply to remove it. If the adequate mechanism issue is not resolved satisfactorily, we will be removing the bathwater and the baby. There are a number of further proposals concerning payment. These include, for example, restricting the use of pay when certified clauses, introducing a right to make an application for payment, and paying for the costs of a valid suspension of work. Happily, it has not been considered necessary to redefine the content of the section 111 withholding notice. These proposals will generally not have a far reaching impact upon the industry. On the adjudication front, a number of points have been considered but there is nothing of real change that will affect the manner in which adjudication has developed over the past few years. An example is the requirement in section 107 of the Act for construction contracts to be evidenced in writing. In RJT Consulting Engineers v DM Engineering (NI) 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, the DTI has recognised that a problem exists. Whilst the review appears to accept that adjudicators should be capable of adjudicating upon disputed contract terms, further consideration will be needed before the primary legislation can be amended. On another point of concern, the consultation proposed an amendment to the legislation allowing certain jurisdictional challenges to be resolved in a binding manner by the adjudicator. It was proposed that this would include whether there was a construction contract as defined by the Act, whether there was a proper adjudicator appointment and whether there was a dispute capable of being referred to adjudication. The review has concluded that there is little justification for providing the adjudicator with the power to rule upon any such questions raised in connection with his own jurisdiction. In a short article it is impossible to cover all the points raised in the review. If further reading is required, an electronic version of the consultation analysis can be found on the DTI website at www.dti.gov.uk/construction.
CJ-0603
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