05 Construction Act

Question 1

What is the full name of the Construction Act?

Answer 1

Housing Grants, Construction and Regeneration Act

Question 2

In what year was the Construction Act introduced?

Answer 2

1996

Question 3

What was the purpose of the original Construction Act 1996?

Answer 3

1. The right to be paid in interim, periodic or stage payments (for contracts at least 45 days in duration)
2. The right to be informed of the amount due, or any amounts to be withheld
3. The right to suspend performance for non-payment
4. The right to adjudication
5. Disallowing ‘pay when paid’ clauses (unless third party is insolvent)

Question 4

When were ‘pay when paid’ clauses commonly used and what were the implications?

Answer 4

Commonly used in sub-contracts where the contractor would only pay their sub-contractors once they had been paid themselves, meaning any delays could have serious consequences for small companies where cash flow is vital

Question 5

When do the provisions of the Construction Act apply?

Answer 5

Applies to all contracts for ‘construction operations’

Question 6

What constitutes a ‘construction contract’ under the Construction Act?

Answer 6

1. Construction, alteration, repair, maintenance, decoration, demolition and installation of buildings, walls, landscapes, roadworks, railways, runways, harbours, reservoirs, sewers, power-lines etc.
2. Installation of services (mechanical, electrical, drainage etc.)
3. Architectural, design, surveying and engineering advice

Question 7

What is excluded from the definition of a ‘construction contract’ under the Construction Act?

Answer 7

1. Residential occupiers for work on their property where they intend to use the property as their residence
2. Certain mining, drilling and extraction operations
3. Manufacture and delivery of materials not involving installation (supply only)
4. Artistic works
5. Installation/demolition of machinery where the primary activity is nuclear processing, power generation, water or effluent treatment, processing of chemicals, pharmaceuticals, oil, gas, steel, food or drink

Question 8

Are consultant appointments covered by the Construction Act?

Answer 8

Yes, they are included within the definition of ‘construction operations’

Question 9

When and how was the Construction Act last amended?

Answer 9

The Construction Act was amended in October 2011 by the Local Democracy, Economic Development and Construction Act 2009

Question 10

What has the most recent amendment of the Construction Act enforced?

Answer 10

1. Includes verbal construction contracts
2. No longer allowable to define who bears the cost of adjudication (aka ‘Tolent clauses’)
3. Adjudicators have the right to correct accidental errors or omissions within 5 days of delivering decisions
4. Must issue a payment notice within 5 days of the date for payment, even if no amount is due
5. Must issue a pay less notice if they intend to pay less than the amount in the payment notice, setting out the basis for its calculation
6. The notified sum is payable by the final date for payment
7. If the client/specified person fails to issue a payment notice, the Contractor may issue a default payment notice, which is payable if a pay less notice is not issued
8. ‘Pay when certified’ clauses are no longer allowed
9. Release of retention cannot be prevented by conditions within another contract
10. The Contractor can now suspend any or all of its contractual obligations for non-payment
11. Client must pay reasonable loss and expense incurred by the Contractor during suspension

Question 11

What are the payment provisions required by the Construction Act?

Answer 11

1. Payment must be in interim for contracts at least 45 days in duration
2. Dates for payment must be set out in the contract
3. Client/specified person must issue a payment notice within 5 days of the date for payment, even if no amount is due (otherwise Contractor’s application for payment becomes the payment notice)
4. Client/specified person must issue a pay less notice if they intend to pay less than the amount in the payment notice, setting out the basis for its calculation
5. The notified sum is payable by the final date for payment
6. If the client/specified person fails to issue a payment notice, the Contractor may issue a default payment notice, where the final date for payment is extended by the period between when the client should have issued a payment notice and when the contractor issued the default payment notice. If the client/specified person does not issue a pay less notice, they must pay the amount in the default payment notice
7. ‘Pay when paid’ clauses (unless third party is insolvent) are not allowed
8. ‘Pay when certified’ clauses are no longer allowed
9. Release of retention cannot be prevented by conditions within another contract (e.g. contractors on a management contract must have their retention released when their part reaches practical completion, not the project as a whole)

Question 12

What happens if a construction contract does not conform to the Construction Act?

Answer 12

If contracts fail to comply with the Construction Act, then the Scheme for Construction Contracts (England and Wales) Regulations apply:

• Either supplements the provisions of the contract where it has deficiencies or replaces the contract where it is non-compliant
• Enables construction contracts to remain capable of performance, whilst allowing regulatory control over their provisions