Some very significant changes in Construction Law came into force in England and Wales on 1 October 2011, which may have a great impact on you. In particular, there are significant changes in relation to:
1. Costs of adjudication between parties embroiled in a dispute;
2. Suspension of a contract;
3. Oral contracts; and
4. Obtaining payments from a Payer who has not served a Payment Notice.
Potentially, some people may be caught out by the changes so it’s important to know what they are and how they may affect you and your business.
The Law:
The above areas were governed by the Housing Grants, Construction and Regeneration Act, 1996 (“the 1996 Act”); however this Act has now been amended by the Local Democracy Economic Development and Construction Act, 2009 (“the 2009 Act”) which came into force on 1st October 2011 in England and Wales and will come into force on 1 November 2011 in Scotland (although the Law is of course different in Scotland). There are also amended Schemes for Construction Contracts.
This 2009 Act is not retrospective and therefore only applies to contracts entered into on or after the above dates.
Any contracts entered into prior to the above dates therefore remain governed by the 1996 Act.
Costs of adjudication:
Previously, contracts often contained a clause (known as a “Tolent clause”) that stated that if either party referred a point to adjudication, they would be responsible for the Adjudicator’s costs and also the responding party’s legal costs.
Now, under the 2009 Act, any contract which contains a clause which attempts to require that the referring party pays all of the responding party’s costs and all of the Adjudicator’s fees and expenses will be ineffective.
Suspension of a Contract:
Under the 2009 Act, it is possible for a contractor to suspend performance of part of a contract if payment has not been received. A contractor who suspends performance due to non-payment of the other party, can claim for their reasonable costs and expenses in relation to the suspension, the cost of demobilisation and remobilisation and further, they can claim for extra time to complete the works.
Oral Contracts:
Under the 1996 Act, contracts had to be evidenced in writing and those that weren’t, were not afforded the protection of the Act.
Now, under the 2009 Act, contracts that have been made solely orally or partly orally and partly in writing will also be afforded the protection of the Act.
Obtaining payments from a Payer who has not served a Payment Notice:
The Payer must give Notice under the 2009 Act, even if the amount due is nothing. If the Payer fails to serve Notice within 5 days of the due date, the Payee may serve Notice on the Payer of the amount that they think they are due (i.e. their own payment notice) or default payment notice. There is a positive obligation to pay the amount as per the sum in the payment notice.
If the Payee fails to serve a default notice on the Payer where one is due, the Payee cannot suspend performance for non-payment and further, the positive obligation set out above does not then apply to the Payer either. It is of course therefore vital to ensure a default Notice is served by the Payee where applicable.
If you want legal advice and assistance in relation to your business or more details on how the new Act may affect you, please contact Peter Allen on 01245 453813
