Changes for the construction sector ahead

I have blogged previously about the pros and cons of doing business without properly drawn up contracts - Contracts – insurance for business and Beware contracting by email. From 1 October 2011 the issue of how you contract becomes even more important for companies in the construction and engineering sectors.

Changes to the Construction Act mean that informal and verbal construction contracts will fall within the auspices of the Act and this has significant consequences for smaller construction companies and contractors not currently using standard form or other formal contracts.

As things stand, the Construction Act does not currently apply to construction contracts which are not ‘evidenced in writing’, but from the 1st October 2011 all that changes. The significance of the changes is that, once a contract falls within the Act, certain ‘implied provisions’ automatically apply as do set rules and procedures for such key areas as payment and adjudication.

You might be surprised to learn what falls within the scope of what amounts to a ‘construction contract’ for the purposes of the Construction Act. It covers not only an agreement for building as generally understood, but also for:

• construction, alteration, repair, maintenance, extension and demolition or dismantling of structures forming part of the land and works forming part of the land, whether they are permanent or not

• installation of mechanical, electrical and heating works and maintenance of such works
  
  
• cleaning carried out in the course of construction, alteration, repair, extension, painting and decorating and preparatory works
  
  
• architects, designers, engineers and surveyors, and
  
  
• advising on building, engineering, decoration and landscaping.   
  
  

There are a limited number of exceptions, a notable one being contracts with residential occupiers, but other than that you should be aware of the requirements of the Construction Act and the statutory provisions, particularly relating to payment, the right to suspend work and adjudication, which will be imposed if you do not include acceptable alternatives.

In terms of payment, the statutory payment mechanism includes a right to suspend work if the final date for payment has passed. That right is now to be enhanced to allow all or part of the obligations to be suspended, a right to receive the reasonable costs and expenses of the suspension for non-payment and an extension of time to complete the contract not limited to the period of suspension.

The main change so far as adjudication is concerned is not in the statutory procedure, but the fact that it will apply to all ‘construction contracts’ and not just those ‘evidenced in writing’ as at present.
There is potential for even more work for the courts as unsuspecting contractors find that they are faced with unexpected consequences.

If your business is likely to fall within the scope of the Construction Act when these changes come into force, then now is the time to prepare – understand how the changes will affect your business, review your procedures and update them where necessary, make relevant staff aware of how they should deal with new contracts when the changes apply and– which is not recommended! – if you decide to continue to rely on informal or verbal arrangements, then at least make sure you have full and accurate records.

Sue Mann
Commercial Solicitor, Birmingham

For free advice on this topic please call us on 0845 003 5639.