The Construction Act coming up to the First Anniversary
We are now coming up to the first anniversary of the Construction Act. Information is now becoming available which permits some assessment to be made of the first year's experience of the Act. Let's first consider the adjudication provisions.
Adjudication
At one time it was thought that the industry would become "adjudication-crazy" and refer thousands of disputes to adjudication. The reality is very different. There have been very few adjudications. Anecdotal evidence suggests that consultants are making greater use of adjudication than contractors. Threats to refer disputes to adjudication often result in a negotiated compromise. This is great news.
But there is bad news. Whilst the industry was united in the need for and its understanding of adjudication, it is anything but united in transferring the statutory requirements into contracts. In fact, the position can be best described as "chaotic". Everyone has gone their own way - including the contract-producing bodies - in drafting their own adjudication provisions. Perhaps, one should not have been surprised at this but it will become a nightmare for adjudicators as well as for firms trying to come to grips with the different procedures that are on offer. Therefore, my priority amendment to the Construction Act is to introduce a mandatory adjudication procedure. The Scheme for Construction Contracts could, of course, be made mandatory although (it has to be said) it will require some amendment.
At the last count I identified the following permutations:
- Unamended but differing adjudication provisions in the standard forms.
- Amended standard form provisions.
- Bespoke adjudication provisions.
- Contractual incorporation of the provisions of the Scheme with/without amendments.
- The incorporation of adjudication procedures supplied by bodies such as the Construction Industry Council and Centre for Dispute Resolution with/without amendments.
Nevertheless, it is heartening that contract draftsmen are amending contracts to incorporate the statutory requirements on adjudication although there is concern that there are many in the industry who have not heard of adjudication at all.
The "matter of dissatisfaction" provision in the ICE family of forms has now become notorious as failing to comply with the Act. Pity the poor adjudicator appointed by the ICE Panel who has to decide whether this provision is in accordance with the Act. Under the ICE form one cannot have - initially - a dispute. Instead, all disputes are re-classified as matters of "dissatisfaction" and the engineer must be given an opportunity to consider such matters (one month) before they can take on the character of being a dispute and, therefore, referable to adjudication. This is a fairly naked attempt to contract out of the provisions of the Act under which a party can refer a dispute or difference arising under the contract to an adjudicator at any time.
It is, of course, possible to have Act compliant adjudication provisions whilst at the same time tacking on onerous provisions. Here is a good example:
"All the parties . . . . may agree in writing to extend the period within which the adjudicator may reach a decision in relation to all or any of these disputes. [If the main contractor] so requests in writing all of the parties shall so agree".
A wonderful example of even-handedness! It may, of course, be arguable that since such clause detracts from the requirements of the Act it does not, in fact, comply with it.
There has been much debate about enforcement of adjudicators' decisions. What is the point of statutory adjudication if the adjudicator's decision is not to be enforced? At the time of writing there is a case on enforcement before Judge Dyson, President of Technology and Construction Court. We await the outcome with rather more than just a passing interest¹. Hopefully, the courts will be robust in throwing out contractual provisions such as those limiting adjudicators' decisions on payment to ordering that disputed monies be deposited in a trustee stakeholder account. Such provision runs counter to the whole thrust of statutory adjudication. In fact, it contradicts Section 111(4) of the Act which states that where the adjudicators decides that the whole or part of disputed set-off monies be paid over, the decision is to be regarded as requiring payment not later than seven days from the date of his decision.
Payment
It is now becoming clear that contractual payment provisions are reflecting the basic structure of the Act. Thus:
- The due and final dates of payment are being identified.
- There is incorporated the requirement for a payment notice to be issued within 5 days of the due date for payment informing the payee of his payment entitlement.
- Set-off can only be exercised following the issue of a written notice within a period before the final date for payment giving the reason(s) for the set-off and the amount(s).
- "Pay when paid" is on the wane although many have taken advantage of the statutory exception that it may be adopted in the event of the insolvency of a third party payer.
So far so good. We are moving in the right direction. But, all is still not well:
- "Pay when certified" arrangements are appearing in many contracts although these could fall foul of the requirement that there be an "adequate mechanism" for determining when and what payments are due.
- There is evidence that payment periods are on the increase; the period for the discharge of payment (from the due date to the final date of payment) is often in excess of 45 days.
- Valuations are becoming even more parsimonious.
- The right of set-off is exercisable up to the day prior to the final date of payment.
- The statutory right to suspension has been undermined by clauses which require the payee to give a notice that is much longer than the statutory seven days notice.
Overall the Act has had and will continue to have a beneficial impact. The Government has stated time and time again that it is committed to the success of this legislation and will review the operation of the Act on the second anniversary of its commencement. Those who are now intent on avoiding or undermining the provisions of the Act will only fuel the demand for amendments to be made. Lets hope that, in the meantime, they will see sense.
R Klein