UK Construction Act: Long-Awaited Changes Come Into Effect This Fall

Previously published in Building & Bonding: The Construction Group Newsletter

Changes to the UK Construction Act (the "Act") overhaul certain payment procedures and dispute resolution or "adjudication" provisions, generally enhancing the rights of subcontractors and other payees. Part 8 of the Local Democracy, Economic Development and Construction Act 2009 amends Part II of the Housing Grants, Construction and Regeneration Act 1996, and came into force in England and Wales for contracts entered into on or after October 1, 2011. It will affect contracts in Scotland entered into on or after November 1, 2011. The revised Scheme for Construction Contracts imports the provisions noted below, among others, into construction contracts that do not comply with the Act. There are different schemes for England, Wales and Scotland.

The top five changes affecting the construction industry are:

Oral contracts now governed by the Act Parties to pay their own adjudication costs Separate payment and "pay less notices" required Pay-when-certified clauses unenforceable Partial suspension of performance along with costs, and time extension allowed Oral Contracts. The Act will now apply to all construction contracts whether in writing or not, wholly or partially. Therefore, it will be possible to adjudicate disputes under oral contracts, and the new payment notice provisions below will apply to oral contracts. Although dispute resolution provisions must still be in writing, all contracts—written or oral—need to comply with the Act. The Act will import default provisions into noncompliant written and oral contracts. One such default provision provided by the Act is that either party may give notice at any time that a dispute is being referred to adjudication; and within seven days of the notice to refer, the adjudicator must be appointed and referred the dispute.

Adjudication Costs. Under the amendments, each party shall bear its own adjudication costs. Contract terms that predetermine which party pays the adjudication costs are rendered ineffective. In other words, "Tolent" clauses,1 whereby the referring party or the subcontractor generally would be held responsible for all costs of the adjudication, are no longer enforceable. However, the contract can provide that the adjudicator determines which party pays the adjudicator's fees.

Pay Less Notices. Withholding notices no longer exist under the amended Act and are replaced by pay less notices, which notify the...