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All change for construction contracts

The law governing construction contracts is changing. The Local Democracy, Economic Development and Construction Act 2009 (LDEDCA) comes into force on 1 October 2011 and will amend the Housing Grants, Construction and Regeneration Act 1996 (HGCR Act). Suzanne Reeves of law firm Wedlake Bell discusses the implications.

The right to adjudicate and an implied contractual mechanism for payment brought in by the HGCR Act are here to stay, but LDEDCA will make a number of important changes. These will affect all construction contracts covered by the Act, including consultants' appointments and services.

From October, the new Act will mean that:

  • Parties who have an oral or partly oral contract will be able to rely on the Act.
  • The contract will have to include a written provision allowing the adjudicator to correct typographical or clerical errors in his decision (the 'slip rule').
  • "Pay when certified" clauses will be prohibited in most contracts.  The main contractor cannot make payment to his sub-contractors conditional on his own payment by the employer being certified. 
  • The payment provisions have been overhauled and the contract can provide for payment to be payer-led or payee-led.  Either party (not just the payer) may issue a notice stating how much is due. Notices must be given even if the amount due is zero.  ‘Withholding notices’ are replaced by ‘pay-less notices’.
  • The payee can claim the costs of exercising his right to suspend for non-payment.
  • A clause that provides that the party bringing an adjudication claim will be liable to pay all costs of the adjudication (a ‘Tolent clause’) will be outlawed unless agreed by both parties at the time of the adjudication (although the legislation wording is ambiguous).

There are a few practical points that should be noted by anyone entering into a construction contract.

First, if contracts are being entered into around 1 October, all contracts in the contractual chain should be consistent to avoid a situation where, for example, the main contract is governed by the provisions of the HGCR Act, but the sub-contracts entered into later on, are governed by LDEDCA.

Also, any existing standard terms and conditions used for works caught by the legislation using terminology of the HGCR Act will need to be amended to reflect LDEDCA.

Finally, after 1 October, even if an appointment is verbal, if it is for construction works caught by the Act, the new payment provisions will apply and disputes can be referred to adjudication – equally you could find yourself on the receiving end of a notice to adjudicate.

For more information on LDEDCA, contact Daniel Webb, Director at Watts, on 020 7280 8000 or Suzanne Reeves, Partner at Wedlake Bell, on 020 7395 3168.

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