Construction Contract Changes

The Local Democracy, Economic Development and Construction Act 2009 (“the New Construction Act”) comes into force on 1 October 2011 and JCT this week has released its new Design and Build Contract 2011 and Guide in anticipation of the New Construction Act

Significant changes have been made to both adjudication and the payment provisions implemented by the previous Construction Act

Adjudication

• Legal costs.  It is not now possible for parties to include contractual terms dealing with their own legal costs.  The Adjudicator has no power to award costs in favour of one of the parties.  The exception to this is where the parties reach such an agreement after the dispute has been referred to the Adjudicator.  However, this is thought unlikely to happen, as by that stage the parties will be aware of the dispute and the party who perceives itself to be in the weaker case, will not want to agree liability as to costs.  The parties can make provision for the payment of the Adjudicator’s fees and expenses.   It is thought that Adjudication will become more attractive to disputing parties where they are not at risk as to the party’s legal costs

• Clerical errors.  The Adjudicator now has the power to make corrections to his decision to remove clerical or typographical errors.  If the contract does not include such a provision, then the Scheme requires the Adjudicator to do so within 5 days of the delivery of his decision to the parties

Payment

• The Scheme and JCT Contracts provide for the payer (Employer) or to give a Payment Notice not later than 5 days after the payment due date.  A “specified person” (Employer’s Agent) can now give the notice on behalf of the payer.  The notice must state the sum considered to be due and the basis on which it is calculated, even if the amount is zero

• Subject to the giving of a Pay Less Notice, (the current system of ‘withholding notices’ has been abolished) the sum notified in the Payment Notice becomes payable before the final date for payment

• If the payer fails to give a Payment Notice, then subject to a Pay Less Notice, the amount of the payee’s (Contractor’s) application for payment will be payable in full

• JCT Contracts requires a Pay Less Notice to be given not later than 5 days before the final date for payment (the Scheme is 7 days).  Unlike the current system, the Pay Less Notice must again specify the sum the payer considers to be due and the basis on which it is calculated, even if the amount is zero and cannot simply be limited to the amount proposed to be withheld.  The sum notified in the Pay Less Notice is the amount that the payer must pay

• Where the time limit for the giving of a Pay Less Notice has expired but the payee (Contractor) is insolvent, then as long as the contract so provides, (like JCT Contracts) then the payer need not make any payment

• Contractual terms that make payment conditional on the performance of obligations under another contract (for example, ‘pay when certified’ clauses) will now be unenforceable

Suspension

• A Contractor now has a statutory right to his reasonable costs and expenses as a result of exercising a right to suspend

In light of the above, if you have not already done so, Employers and Contractors must immediately review their contract documents

Anthony Best

Partner