Part II of the Housing Grants, Construction and Regeneration Act 1996, often referred to as the ‘Construction Act’, contains provisions that are implied into all relevant construction contracts.
Part II of the Construction Act provides that construction contracts must include:
- a right for a party to a Construction Contract to refer a dispute to adjudication for determination of a dispute (sections 108 and 108A); and
- a mechanism for periodic payments during the course of the works (sections 109 to 113).
The Construction Act is supported by The Scheme for Construction Contracts (England and Wales) Regulations 1998, which sets out implied terms relating to payment and adjudication. The implied terms are to be read into a construction contract if the actual contractual provisions do not meet the requirements of the Construct Act.
Mechanism for Adjudication
Under Section 108 of the Construction Act, a party to a construction contract has the right to refer a dispute arising under the contract for adjudication under a procedure complying with s.108. The adjudication terms of the Scheme would be implied into a construction contract where they are not expressly included.
Further, if a construction contract has provisions that are not compliant with the Construction Act, the Scheme’s adjudication mechanism will be implied into the contract. In this circumstance, the whole of the contract’s mechanism is replaced with the Scheme’s adjudication mechanism.
This provides every party to a relevant construction contract with access to a process providing a (temporarily) binding decision within 28 days of referral to an adjudicator.
Mechanism for Payments
Sections 109 to 113 of the Construction Act sets out the provisions that construction contracts must deal with:
- an entitlement to payment by instalments, stage payments or other periodic payments (s.109);
- an adequate mechanism for determining what payments become due under the contract, and when, along with a final date for payment for any sums which become due (s.110);
- payment notices (s.110A and a.110B);
- pay less notices (s.111); and
- a right to suspend for non-payment of a sum that is due (s.112).
Section 113 of the Construction Act also prohibits ‘pay when paid’ provisions that attempt to make payment under a construction contract conditional on the payer receiving payment from a third party.
The Scheme contains a catch-all set of provisions for when a construction contract does not have any clear payment terms. In this circumstance, all the payment provisions in the Scheme will be implied into the construction contract. However, if a construction contract does contain payment provisions but these provisions do not comply with the Construction Act, the Scheme’s payment provisions will be implied only to the extent necessary to rectify any non-compliance.
Following the implementation of the Construction Act there has been a substantial amount of case law that has developed around the question of compliant payment terms in a construction contract. Legal advice on the interpretation and compliance of payment terms in a construction contract is essential.
