If your construction business involves architecture, design, surveying, engineering, building, decorating, laying-out landscape, repairing, altering, maintaining, demolishing or dismantling in England, Wales or Scotland, you are very likely to be conducting construction operations regulated by the Construction Act 1996. If this is the case, when drafting your contracts, you should take into account what this piece of legislation says about payments, suspension of works and dispute resolution.
When it talks about payment, the Act says that where the parties have not agreed payment provisions compatible with the Act, the payment provisions set out in the Scheme for Construction Contracts will apply. It means that you may end up making or receiving payments in a time frame completely different to what you had in mind – and with potentially undesirable impacts on your cash flow. So make sure you have compliant payment provisions in place.
Still talking about payments, the Act says that conditioning payments to a contractor or subcontractor on receiving payments from a third party – let’s say another contractor – is not allowed. This is good news for contractors who will have grounds to complain if their clients say that they cannot pay because they haven’t received from someone else.
When it comes to the right to suspend works if payments due are not made, the Act sets out that it is a right even if the contract does not include it. It also sets notice periods to allow the defaulting party to make the payments.
It also states that disputes related to a construction contract are subject to adjudication, an alternative dispute resolution mechanism – often faster than the Courts – where an adjudicator – usually an expert in the field – decides the issue with binding effects until a final decision is reached in Court or arbitration. The idea is to provide an interim solution for the dispute so that the works can continue without long delays that judicial and arbitration proceeding may cause.
So what do your contracts say about payment, suspension or works and dispute resolution? Are you sure you're compliant?
Carla Caroli, LawBite Corporate and Construction LawBrief. To consult with Carla today about your construction contracts, whether you're a one-man band or a large organisation, you're welcome to submit an enquiry for a
free 15 minute legal consultation about your needs. Or call us today on 020 7148 1066. – Share this using #LawBite Join the conversation in the comments below. If you have any commercial law topics that you want covered next year, please let us know in comments below.