Overview of a seminar my colleagues did last month with Hill International

1. BPE Solicitors LLP
Fraser Chambers & Adam Hiscox on Changes to The Construction Act 2010
St James’ House
St James’ Square
Cheltenham
GL50 3PR 24th September 2010
© BPE 2010

2. s.107 Contract in Writing
• Current law is all the material terms of the contract, which must be in writing or
evidenced in writing.
• Removal of s.107 contract in writing requirement means that more construction
contracts can benefit from the right to refer to adjudication and the payment rules.
• BUT, new Act still requires a provision in writing as to the right to adjudicate.
• Why? Adjudication is a summary procedure i.e. obtained without trial. It only works if
there is a contract which appoints the adjudicator (which is not disputed).
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3. What this means in practice?
• If an entirely oral contract, then no written provision to appoint the adjudicator is
needed.
• If oral variations then Adjudication will need to include witness statements.
• Adjudication still largely taken on written submissions. But if cross-examination of
witnesses is required, adjudication becomes a mini-trial.
• Avoid the scenario of one person's word against another’s - ensure that all the
contract terms (including variations) are agreed and evidenced in writing.
• Be prepared to have witness statements ready before the 28-day period begins.
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4. S.108 Ban on ‘Tolent’ Clauses
• ‘Tolent’ clause – the referring party undertakes to pay the other party’s legal costs,
irrespective of the outcome of adjudication.
• The new s.108A provides that any term which allocates the payment of adjudication
costs will be ineffective.
• But, agreements which allocate costs entered into after the notice of intention to refer
will not flout the new law. Remote possibility of such agreements.
• Cases will decide upon whether any such side agreements flout the new law.
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5. Prohibition of ‘pay-when-certified’ clauses
• Prohibition on ‘pay-when-paid’ clauses being circumvented by ‘pay-when-certified’
provisions.
• New Act says payment may not be linked to or conditional upon performance of
another contract.
• Creates an inherent problem for PFI projects and Management Contracts (rise in use
of Project Bank Accounts).
• But possible avoidance devices:
a) Parallel loan agreement
b) Clawback provisions
c) Restrict the contractual remedies
• Payment of retention to sub-contractor cannot be contingent upon main contract
Certificate of Making Good Defects / payment of main contractor’s retention.
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6. PAYMENT TERMS CONTINUED…
By Adam Hiscox, Solicitor BPE Solicitors LLP
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7. S.110A & 110B - Failure by employer (or specified person) to issue
then…
1. Amount in contractor’s application stands (s110B(3)), or
2. Contractor Notice under s110B(2)…
Section 111- Notice of intention to pay less
“sum due” now “notified sum”
New “Notice of intention to pay less”
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8. For the first time there is the potential for the employer to be bound by contractor’s
assessment of what it considers is due…
Major implications for the employer:
• contractors claiming more than they should
• draw downs under funding arrangements
• LADs
Given the potential for the payee to decide what is due to it, s111 is vital
• defects and abatement, LADs all need to be stated
• case law resolved?
• more case law over form and timing of notices?
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9. Notices and adjudication
• Employer’s notified sum or notice of intention to pay less can be adjudicated
• And if MORE is due to the contractor (as decided by the adjudicator) then:
additional amount due 7 days after date of decision, or
the date which would have been the final date for payment but for the notice
…whichever is later
Contractor can adjudicate if it disagrees with the notices.
If employer fails to issue its notices then it can adjudicate but the act makes it clear the
amount due under the contractor’s notice must be paid. No more arguments over “sums
due” and need to withhold.
Contractor’s notice has the effect of being final and binding on employer.
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10. Section 112 – suspension for non-payment
• Costs, expenses, and EOTs
• Partial suspension
Implications:
• Suspension as a tool will increase – delays on projects
• Seemingly, the effect on contractor’s cash flow mitigated, however:
arguments over which “parts” the contractor is allowed to suspend
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11. Are construction consultants and lawyers now redundant?
Short term Long term
• Amend contracts • Employers be aware and issue
prompt and effective notices
• Train staff
• Conflicts will still arise
• If you are still tempted to use
it… remove that bottom drawer! • Adjudication
• Delay claims
• Vigilance still needed (by all)
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12. Thank you.
Any questions?
Adam Hiscox
Adam.hiscox@bpe.co.uk
01242 248215
Fraser Chambers
01242 248296
Fraser.chambers@bpe.co.uk
© BPE 2010