We all know the new 'Construction Act' comes into force this year, but did you know it could mean that:
- You will have to pay an application for payment if your processes in issuing payment notices are not robust enough to deal with the time constraints?
- Valid ‘pay less’ notices will require a full breakdown of the basis upon which the sum is to be calculated and not simply the grounds for withholding and the sums to be withheld?
- You may have to pay even if some of the works have not yet been signed off?
Given that this is a fundamental shift in culture since the Construction Act came into force in 1998, you need to ensure all of your procedures are checked and update your contracts to carve out exceptions to the rules where possible to protect your business if you are not to lose money and incur the costs of legal action.
Part 8 of the Local Democracy Economic Developments and Construction Act 2009 ("the Construction Act") comes into force in less than a month and applies to all contracts entered into from 1 October 2011 onwards in England and from 1 November 2011 in Scotland.
The removal of s107 is perhaps the most talked about and is likely to have the somewhat ironic effect of encouraging contractors to ensure that contracts are in writing for the sake of certainty. This makes it all the more important that contractors use the right contracts with suitable amendments in order to protect their position, should relationships on the project breakdown.
Talking of disputes, contracts are no longer allowed to contain clauses which pre-determine which party will pay the other side’s costs, should a dispute arise. Such matters can be agreed at a later date, but parties should tread carefully in negotiating this point and clear wording is required here.
It is extremely old news that "pay when paid" clauses are unlawful. However, the only slightly younger trick of using "pay when certified" instead will now no longer work either following the new Construction Act. Further complication is added as payment notices replace withholding notices. A failure to deal with these changes effectively may result in a significant cashflow headache for contractors which will be particularly bad news as the market still struggles to pick up.
Good news for contractors is that there is an enhanced right to suspend performance if the employer fails to make timely payments. Contractors will still need to protect themselves with sensible payment provisions in the contract that employers find palatable.
How to avoid the headaches!
In short, now is the time to carry out a health check on all your contracts - both upstream and downstream. BPE's team of construction lawyers are ready to review your contracts and ensure you are in the best position on 1 October 2011. As well as considering Construction Act compliance, we can suggest other amendments to your documents to protect your legal position, leaving you and your team free to get on with what you do best - running successful construction projects!
These notes have been prepared for the purpose of an article only. They should not be regarded as a substitute for taking legal advice.