The Construction Act 2009
- the industry’s answer to the
          recession?
            Richard Wade
      Partner, Head...
Forecasts for Construction;
CPA Report – Autumn 2008
   Construction output to decline by 7% in next 3 years
   – return t...
“These forecasts are without doubt the gloomiest we
   have produced since compiling this information and
   have been dow...
The early ’90s revisited?

   Sir Michael Latham “Constructing the Team” (1994)
   30 recommendations made; 2 adopted:-
  ...
The Construction Act 1996

   Two key recommendations of Latham
   Introduction of mandatory provisions for payment and
  ...
The Construction Act 2009 …?

   Proposals to amend the 1996 Act
   March 2004: Gordon Brown (as Chancellor)
   announces ...
Inception of the new Act

   Draft Construction Contracts Bill published for
   consultation in July 2008
   Included in Q...
“Our amendments….will create greater certainty and
clarity of cash flow for all in the construction supply chain”
(emphasi...
The twin objectives

   The new Act makes potentially significant
   amendments to existing provisions for:-
     – Paymen...
Amendments to payment provisions




© Blake Lapthorn 2009
Payment: the current weakness

   Section 110(1)(a) Contracts must
   have adequate mechanism for determining what
   paym...
Payment: the current weakness

   Likelihood that majority of contracts do not have
   adequate mechanism
   ‘Scheme’ not ...
New proposed Section 111

   Payer must pay notified sum on or before the final
   date for payment




© Blake Lapthorn 2...
‘Notified’ sum
   The sum specified in notice issued by:
    – payer
    – payee
    – payee (where payer fails to issue n...
Payer’s failure to issue notice

   Payee can issue notice instead but final date for
   payment extended from expiry of f...
Notice to pay less

   Payer can issue notice of intention to pay less than
   notified sum
   Notice must indicate sum pa...
Payment procedure: option 1

                                 Notified sum to be
                                    disch...
Payment procedure: option 2



            Payer/payee    Payer issues      Reduced
               issues       Reduction ...
Payment procedure: option 3



                              Payee operates   Extended
      Payer fails to issue
        ...
‘Conditional’ payment – the end of ‘pay
when certified’?
   “Adequate mechanism” requirement not satisfied
   where:-
    ...
Conditional payment (cont.)

   Will 110(1)(A) actually outlaw pay-when-certified
   clauses?
   Will 110(1)(A) conflict w...
Other changes

   No requirement to pay sum due where payee
   became insolvent after prescribed period and
   contract pe...
Amendments to adjudication
             provisions




© Blake Lapthorn 2009
Removal of requirement for contracts to be
in writing
   RJT Consulting Engineers v DM Engineering (2002)
   Section 107 r...
Slip Rule

   New s108(3)(A)
   Contracts must include provisions that adjudicator
   has power to correct and clerical/ t...
Costs in adjudication

   New s108A
   Agreement allocating “costs relating to the
   adjudication” ineffective unless mad...
Verdict?

   Improvement in payment provisions but complexities
   remain; still ‘lean’ towards payer?
   Abolition of s10...
Current Progress

   Final amendments made to Bill during 3rd reading in
   the Lords on 29 April 2009
   Received 2nd Rea...
If you have questions on this or other related topics, please contact:
   richard.wade@bllaw.co.uk
   Blake Lapthorn is an...
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The Construction Act - answer to the recession seminar

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Blake Lapthorn solicitors' Construction and Development sector group held a seminar on The Construction Act - answer to the recession during October 2009.

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The Construction Act - answer to the recession seminar

  1. 1. The Construction Act 2009 - the industry’s answer to the recession? Richard Wade Partner, Head of Construction 17 June 2009
  2. 2. Forecasts for Construction; CPA Report – Autumn 2008 Construction output to decline by 7% in next 3 years – return to growth in 2011 at earliest Housing starts in 2012 will be below 2007 levels Fewest private housing starts in 60 years “dramatic fall” in industrial buildings; future prospects for commercial development “exceedingly poor” © Blake Lapthorn 2009
  3. 3. “These forecasts are without doubt the gloomiest we have produced since compiling this information and have been downgraded from just three months ago to show the sharpest downturn since 1991. The prospects for the industry over the next few years are very precarious. Therefore it is critically important that the government maintains its spending plans in order to deliver the much needed investment in our schools, hospitals, infrastructure and other public sector investment.” - Michael Ankers, Chief Executive, CPA © Blake Lapthorn 2009
  4. 4. The early ’90s revisited? Sir Michael Latham “Constructing the Team” (1994) 30 recommendations made; 2 adopted:- – adjudication – payment Implementation of Housing Grants (Construction and Regeneration) Act 1996 Review of 1996 Act by BERR; amendments likely to be implemented in 2009 © Blake Lapthorn 2009
  5. 5. The Construction Act 1996 Two key recommendations of Latham Introduction of mandatory provisions for payment and dispute resolution via adjudication Two perceived effects:- – Improved cashflow (including outlawing of “pay when paid” clauses) – Quicker and cheaper means of resolving disputes – But …. Never ‘recession tested’ © Blake Lapthorn 2009
  6. 6. The Construction Act 2009 …? Proposals to amend the 1996 Act March 2004: Gordon Brown (as Chancellor) announces review of Construction Act against background of continuing payment problems Original proposal was for an RRO Formal consultations in 2005 and 2007 © Blake Lapthorn 2009
  7. 7. Inception of the new Act Draft Construction Contracts Bill published for consultation in July 2008 Included in Queen’s Speech, December 2008 Revised Bill receives 1st Reading in the House of Lords on 4 December 2008 (some changes from original draft) Provisions contained in Part 8 (Construction Contracts) of the LDEDC © Blake Lapthorn 2009
  8. 8. “Our amendments….will create greater certainty and clarity of cash flow for all in the construction supply chain” (emphasis added). Baroness Andrews in 2nd Reading debate in House of Lords on 17 December 2008 © Blake Lapthorn 2009
  9. 9. The twin objectives The new Act makes potentially significant amendments to existing provisions for:- – Payment – Adjudication © Blake Lapthorn 2009
  10. 10. Amendments to payment provisions © Blake Lapthorn 2009
  11. 11. Payment: the current weakness Section 110(1)(a) Contracts must have adequate mechanism for determining what payments become due and when This is essential for operating ss.111 & 112 (withholding and suspension) © Blake Lapthorn 2009
  12. 12. Payment: the current weakness Likelihood that majority of contracts do not have adequate mechanism ‘Scheme’ not helpful: just contains list of what may be included in interim payments together with due dates and final payment dates © Blake Lapthorn 2009
  13. 13. New proposed Section 111 Payer must pay notified sum on or before the final date for payment © Blake Lapthorn 2009
  14. 14. ‘Notified’ sum The sum specified in notice issued by: – payer – payee – payee (where payer fails to issue notice) Notices must comply with new s110(A) – replacing s110(2) requiring payer to issue payment notice Contracts to indicate which party to issue notices Notices to be issued no later than five days after payment due date Amount of sum considered due must be stated together with basic calculation © Blake Lapthorn 2009
  15. 15. Payer’s failure to issue notice Payee can issue notice instead but final date for payment extended from expiry of five days – Note: potential impact on cashflow But final date for payment intact if payee issues application before payment due date (provided such application is required/permitted by contract) © Blake Lapthorn 2009
  16. 16. Notice to pay less Payer can issue notice of intention to pay less than notified sum Notice must indicate sum payer considers due on date notice is served and basis of calculation Must be given no later than the “prescribed period” before date for payment © Blake Lapthorn 2009
  17. 17. Payment procedure: option 1 Notified sum to be discharged Payer/payee to issue notified sum (on/before final day for payment) 5 days Payment due Final Date date for payment © Blake Lapthorn 2009
  18. 18. Payment procedure: option 2 Payer/payee Payer issues Reduced issues Reduction notified sum notified sum Notice discharged 5 days Prescribed period Payment due Final date date for payment © Blake Lapthorn 2009
  19. 19. Payment procedure: option 3 Payee operates Extended Payer fails to issue default by notified sum procedure 3 days 5 days 3 days Final date for Payment payment due date © Blake Lapthorn 2009
  20. 20. ‘Conditional’ payment – the end of ‘pay when certified’? “Adequate mechanism” requirement not satisfied where:- – payment made conditional on performance of obligations under another contract or decision by any person as to whether such obligations have been performed [New sub-section 110(1)A] © Blake Lapthorn 2009
  21. 21. Conditional payment (cont.) Will 110(1)(A) actually outlaw pay-when-certified clauses? Will 110(1)(A) conflict with current s113? Pay-when-paid exemption in s113 not removed © Blake Lapthorn 2009
  22. 22. Other changes No requirement to pay sum due where payee became insolvent after prescribed period and contract permits payer not to pay sum due in this event (Melville Dundas –v- Wimpey) Improvement to suspension (s112) allowing payee to recover reasonable compensation for “costs and expenses reasonably incurred” during suspension Payee can suspend any or all of his contractual obligations © Blake Lapthorn 2009
  23. 23. Amendments to adjudication provisions © Blake Lapthorn 2009
  24. 24. Removal of requirement for contracts to be in writing RJT Consulting Engineers v DM Engineering (2002) Section 107 repealed: oral or oral/partly written contracts within scope of Act BUT provisions relating to adjudication (8 “compliance points”) must be in writing to comply with s108 © Blake Lapthorn 2009
  25. 25. Slip Rule New s108(3)(A) Contracts must include provisions that adjudicator has power to correct and clerical/ typographical error arising by accident/omission © Blake Lapthorn 2009
  26. 26. Costs in adjudication New s108A Agreement allocating “costs relating to the adjudication” ineffective unless made in writing after giving notice of intention to refer the dispute to adjudication This also refers to the fees and expenses of the adjudicator Tolent clauses to be disallowed © Blake Lapthorn 2009
  27. 27. Verdict? Improvement in payment provisions but complexities remain; still ‘lean’ towards payer? Abolition of s107 (written contracts) welcome Abolition of Tolent clauses welcome Single adjudication procedure advocated in some quarters but is this too intrusive into freedom of contract? © Blake Lapthorn 2009
  28. 28. Current Progress Final amendments made to Bill during 3rd reading in the Lords on 29 April 2009 Received 2nd Reading in the Commons 1 June 2009 Committed to a Public Bill Committee 1 June 2009 Act of Parliament in 2009? © Blake Lapthorn 2009
  29. 29. If you have questions on this or other related topics, please contact: richard.wade@bllaw.co.uk Blake Lapthorn is an English law firm regulated by the Solicitors Regulation Authority under SRA number 448793 whose rules can be accessed via www.sra.org.uk This presentation is protected by copyright and is not a substitute for detailed advice on specific transactions and problems and should not be taken as providing legal advice on any of the topics discussed. A full list of our partners is available on our website at http://www.bllaw.co.uk/about_us/a_to_z_of_partners.aspx or at any one of our offices http://www.bllaw.co.uk/offices. © Blake Lapthorn 2009

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