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The new Construction Act 2009: implications for building surveyors

Steve Donohoe
University of Plymouth, Plymouth, UK
Abstract
Purpose This paper aims to discuss forthcoming changes to the Housing Grants Regeneration and Construction Act 1996 following UK government consultation exercises. The paper seeks to examine ve key areas of construction contract administration which will be affected should the proposed changes be included in new legislation. Design/methodology/approach The approach of the paper is to conduct a literature review of the proposed changes. Findings The ve key areas are: changes in requirement for contracts to be in writing; changes to interim payment decisions by third parties; so-called Tolent clauses and matters concerning adjudication costs, cross contracts; and payment notices. The implications of how these changes might affect building surveyors are explored. The paper concludes that while some of the proposed changes are likely to be welcomed, other proposed changes throw up potential complex and difcult legal issues. Originality/value It is hoped that this paper will stimulate discussion between practitioners and academics about suitable reforms to adjudication and construction law issues in the UK. Keywords Construction industry, Contracts, Law reform, Surveying Paper type Literature review

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Introduction In the summer of 2008, The UK Government issued proposals which will amend parts of the Housing Grants Regeneration and Construction Act 1996 (HGRCA 1996). This paper summarises the main changes proposed in the legislation and discusses the likely implications for building surveyors involved in projects either as administrators or as adjudicators. At this stage it must be stressed that the changes discussed below are merely proposals following a period of consultation, however there are indications that most of the proposals will become law in 2009. Summary of proposed changes to HGRCA 1996 The main changes are set out below: . Changes to current requirement for contract to be in writing. . Changes to interim payment decisions by third parties. . Tolent clauses and other matters concerning adjudication costs. . Cross contracts. . Payment notices. These matters are discussed in turn in the sections below.
Structural Survey Vol. 27 No. 1, 2009 pp. 20-22 q Emerald Group Publishing Limited 0263-080X DOI 10.1108/02630800910941656

1. Changes to the requirement for contract to be in writing At present, Section 107 of HGRCA 1996 requires a construction contract to be in writing before a right to adjudicate arises. This seemingly simple requirement of in writing has caused difculties for the courts particularly where a contract is made

partly orally and partly in writing. In RJT Consulting Engineers Ltd v. DM Engineering (Northern Ireland) Ltd (2002) 18 Const LJ 425, the Court of Appeal held that all material terms must be evidenced in writing. What this judgement effectively means is that there must be a written record that the main terms of the contract were agreed otherwise the right to adjudicate is lost. The proposed change is that Section 107 be repealed. In place of Section 107 will be a new requirement that where adjudication provisions are not in writing, the Scheme for Construction Contracts will apply. Bingham (2008) criticised this proposal in the following terms:
It would be so easy to make the [proposed] Act an implied term that is automatically implied into the contract. Why not simply say (1) the following type of works are construction contracts, and (2) all such contracts shall enable a party to adjudicate. . .

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The author agrees with Binghams sentiments and does not understand why his suggestions are not acceptable to the Government. 2. Changes to interim payment decisions made by third parties The proposed change means that if a contract incorporates a third party interim payment decision, then such provisions shall be ineffective i.e. not allowed. For example an interim payment decision in this context is one made by a third party as to the amount of a periodic payment (normally monthly) or the calculation of that amount. As an exception an agreement will be valid if made following the payment decision. 3. Tolent clauses and other matters concerning adjudication costs The proposed changes also outlaw the use of so called Tolent clauses. The Tolent clause was named after the case of Bridgeway Construction Ltd v. Tolent Construction Limited (2000) TCC in which a clause which required a referring party to be liable for all costs was upheld as being legal. This meant that that while the sub-contractor (Bridgeway) was successful in its claim against Tolent (main contractor) the victory was illusory as Bridgeway had to pay its own as well as Tolents costs. The inclusion of a Tolent clause is considered by some to be sharp practice and not within the spirit of adjudication as this clause is thought to act as a deterrent to parties who are considering adjudication as a speedy way of resolving a dispute. The new Construction Act will not only ban the use of Tolent clauses but also proposes to allow adjudicators to decide whether any proposed costs allocation is reasonable. If a cost allocation is found to be unreasonable by the adjudicator then it is ineffective i.e. not binding on the parties. 4. Cross contracts The proposed change bans any provision that requires payment to be determined by reference to another contract. This will clarify the position of sub-contractors and sub-sub-contractors who often are unaware of when they ought to be paid. The change should also benet consultants who have more than one contract with an employer. 5. Payment notices It is proposed that the current arrangements involving the issue of withholding notices are repealed and replaced by a new system. The new system requires that a contract contains an express provision whereby a payer or payee must give to the other a payment notice no later than 5 days after the due date for payment. The payment notice can also be given by a person on behalf of the payer provided they are named in

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the contract (i.e. consultant). The proposed change has not found favour with everyone. Bingham (2008) acidly commented:
Going out, hurrah, is the old payment and withholding notices system. Instead we have another mistake!

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It remains to be seen whether the new system will be simpler or more complex than the current position. Implications for building surveyors Many of the proposed changes to the HGRCA affect the relationship between main contractors and their sub-contractors. However, the proposed changes will also have major implications for building surveyors working as contract administrators and building surveyors who act as adjudicators. For building surveyors involved in the administration of contracts, the proposed changes represent a mixed bag. Most building surveyor contract administrators will welcome the introduction of the specied person allowing the issue of the payment notice in place of the employer. This should simplify administration and reduce cost. However, the proposed new system of allowing either the payer or payee the power to give payment notices seems cumbersome and likely to cause confusion in what is already a controversial area. This proposed change is less likely to be welcomed by building surveyor contract administrators. In the case of building surveyors acting as adjudicators, the proposed changes seem to recognise that the requirement for contracts to be in writing has caused problems for the construction industry. While the proposed changes seem to acknowledge that there is a problem, the proposed solution seems to be overly complicated. Conclusion The proposed changes to HGRCA 1996 are likely to become law in 2009. While some of the changes discussed above represent progress, in the authors opinion, the overall effect is that the proposed changes represent a missed opportunity to simplify and clarify a problematic legal area. It is hoped that the UK Government might think again before enacting the legislation.
Reference Bingham, A. (2008), Im amphibious about it, Building, 15 August, available at: www. tonybingham.co.uk/column/2008/20080815.htm (accessed 17 September 2008). Further reading BERR (2008), The Draft Construction Contracts Bill, Department for Business, Enterprise and Regulatory Reform, available at: www.berr.gov.uk/les/le47085.pdf (accessed 17 September 2008). Corresponding author Steve Donohoe can be contacted at: s.donohoe@plymouth.ac.uk

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