Tag: Interim Payment

The Scheme for Construction Contracts

In recent posts we have seen two pieces of Primary Legislation being referred to, these being The Housing Grants, Construction and Regeneration Act 1996 and the Local Democracy, Economic Development and Construction Act 2009. Intrinsic to this legislation is The Scheme for Construction Contracts, a Statutory Instrument that has come into force following these acts to regulate key elements of the construction process. In this post we will examine The Scheme and its major points.

We must first remember that this legislation refers to “construction activities” as defined in the legislation. While it is not prescriptive and allows some legal interpretation, broadly a construction contract is defined as “all design and construction contracts, including professional appointments, are likely to be construction contracts as long as they relate to construction operations”.

Which leads to the further question of, “What are “construction operations?””

Again this has been left to some interpretation but includes a wide range of construction operations and most common forms of engineering operation, such as civil engineering projects.

Some engineering projects such as mining, nuclear and power generation as well as contracts with residential occupiers are expressly excluded.

Let’s now consider The Scheme for Construction Contracts. Firstly we must remember that there are a different set of regulations in place in England & Wales to those in place in Scotland. In this post we will consider the regulations as they apply in England & Wales.

The Scheme for Construction Contracts

The Scheme for Construction Contracts (England and Wales) Regulations to give them their full title apply when construction contracts do not comply with the primary legislation and either supplements the provisions of the contract where it has deficiencies relative to the requirements of the Act or replaces the contract where it is non-compliant. The purpose is to allow the contract capable of being performed (reducing the likelihood of frustration) whilst allowing regulatory control over its provisions.

The Housing Grants, Construction and Regeneration Act applies  to all contracts for “construction operations” and sets out the requirements relating to Adjudication and payment, including:

  • The right to commence Adjudication
  • To be paid in interim, periodic or stage payments.
  • To be informed of the amount due, or any amounts to be withheld.
  • To suspend performance for non-payment.
  • Disallowing pay when paid clauses.

Part 1 of the Scheme makes provision for Adjudication where the contract does not comply with the requirement and Part 2 replaces those provisions in relation to payment that do not comply.

The 2011 amendments to The Housing Grants, Construction and Regeneration Act

The Housing Grants, Construction and Regeneration Act 1996 was amended in October 2011 by the Local Democracy, Economic Development and Construction Act 2009 to close loop holes within the original legislation and as a result The Scheme for Construction Contracts was also amended to reflect the amendments. These amendments and their implication have been outlined in previous posts but can be broadly summarised as follows:

  • The act now applies to all construction contracts, even those not evidenced in writing
  • Adjudication clauses must still be in writing
  • Who will bear the cost of Adjudication can no longer be defined in the contract
  • The Adjudicator has the right to correct errors in contracts within 5 days of delivering a Determination
  • Payment dates must be set out in the contract.
  • A Payment Notice must be issued five days of the date for payment, even if no amount is due, although alternatively, if the contract allows, the Contractor may make an application for payment, which is treated as if it is the Payment Notice
  • A Pay Less Notice (previously a Withholding Notice) must be issued where it is intended to pay less than the amount set out in the Payment Notice, including the basis of calculation of the amount being paid less
  • The notified sum is payable by the final date for payment
  • Where a Payment Notice is not issued, the Contractor (or Sub-Contractor) may issue a Default Payment Notice
  • Pay when certified clauses are no longer allowed and retention release cannot be prevented by conditions within another contract.
  • The provisions around the right to suspend for non-payment have been expanded to allow costs to be claimed as well as the right to an Extension of time as consequences of any statutory suspension

These amendments apply to construction contracts entered into on or after 1 October 2011 in England and Wales, and 1 November 2011 in Scotland.

In the next post we will look at Part 1 (Adjudication) of The Scheme for Construction Contracts and the legal requirements and in the post after that Part 2 (Payment).

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