Collateral Warranty Is Held To Be A 'Construction Contract'

Summary and implications

The Technology and Construction Court (TCC) considered the meaning of a "construction contract" and "construction operations" in sections 104 and 105 of the Housing Grants, Construction and Regeneration Act 1996 (as amended) (HGCRA) and held on 29 August 2013 that a deed of collateral warranty was a construction contract under the meaning of the HGCRA.

This has various potential implications, claims under collateral warranties may be referred to adjudication under the HGCRA. Not every deed of collateral warranty will automatically be a construction contract, it depends on the specific wording. The implication of HGCRA payment provisions into collateral warranties is an academic issue raising only an entitlement to stage payments of the sum payable under the collateral warranty (nominal if any), not an obligation to pay based on works value. The Housing Grants, Construction and Regeneration Act 1996

The HGCRA (supported by the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998/649)) sets out the meaning of a "construction contract" (section 104) and "construction operations" (section 105) and provides that only those contracts that fall within the meaning of a construction contract are subject to the provisions of the HGCRA.

The HGCRA implies a number of provisions into contracts that fall within the definition of a "construction contract" including:

the right to refer disputes to adjudication; the right to be paid by instalments; the requirement for an adequate payment mechanism; the right to suspend performance for non-payment; and a prohibition on conditional payment provisions. The focus in a recent case was the right to adjudicate.

Parkwood Leisure Ltd v LaingO'RourkeWales andWest Ltd [2013] EWHC 2665 (TCC)

In 2006 Orion Land and Leisure (Cardiff) Ltd (Orion) appointed Laing O'Rourke (Laing) to design and build a leisure facility in Cardiff under a standard JCT Design and Build Contract. Cardiff City Council let the facility to Orion on a 25 year lease and Orion sub-let the facility to Parkwood Leisure Ltd (Parkwood) to provide facilities management services. Laing provided a deed of collateral warranty to Parkwood.

1. Facts

   A dispute arose concerning the defective design and/or installation of the air handling units at the leisure facility. Parkwood wrote a letter to Laing in accordance with the Pre-Action Protocol for Construction and Engineering Disputes setting out their claim. Laing rejected the claim and Parkwood...