Don't forget to have your say: Government Consultations on Retention and the Housing Grants Act close on 19 January 2018

Introduction

The Government is currently running two parallel consultations aimed at encouraging best practice in fair and prompt payment within the construction sector. These are as follows:

A consultation to support a post-implementation review of the 2011 changes to Part 2 of the Housing Grants, Construction and Regeneration Act 1996 (the "Housing Grants Act" and the "Housing Grants Consultation"); and A consultation on the practice of cash retention under construction contracts (the "Retention Consultation"). Both consultations close on 19 January 2018 and, as such, only a couple of weeks remain to contribute. In this Insight we consider some of the key aspects of the Consultation Papers.

The Housing Grants Act -a post-implementation review

At the time the amended Housing Grants Act came into effect in October 2011, the Government promised that it would undertake a review five years later in order to determine how effective the amendments (and the Housing Grants Act as a whole) were. The Housing Grants Consultation, accordingly, states that its primary aim is to test the effectiveness of the amendments made in 2011.

For those who need a refresher these were:

"...

remove the restriction on who could issue a payment notice; improve the clarity of payment and withholding notices; introduce a 'fall back' provision - allowing a payee to submit a valid payment notice where a payer has failed to issue one; prohibit payment by reference to other contracts; introduce a statutory framework for the costs of adjudication; remove the requirement for contracts to be in writing for the Act to apply; and improve the right of suspension." There are two key interests flowing through the consultation. These are:

Encouraging prompt and fair payment particularly for small companies;1 and The costs associated with the adjudication process and the extent to which they are a disincentive for using it. We examine these below.

"Smash and Grabs" and Payment Procedures

If parties implement the provisions of the Housing Grants Act properly, and keep up with their paperwork, then the payment mechanisms as amended should be relatively effective in encouraging prompt payment. At the very least they should encourage transparency as to what is going to be paid and when.

Disputes generally arise in relation to the notice provisions under the Housing Grants Act when a party fails to follow the notice provisions relating to payments (e.g. by failing to issue Payment Notices on time) and/or tries to be "sneaky" in some way (e.g. by not clearly identifying what they are serving or putting it in a slightly different format to normal).2

It is to be hoped that now the notice procedures for payment cycles have bedded in, and familiarity with them has increased, parties are adopting more robust procedures to ensure the relevant notices get issued on time. There is certainly anecdotal evidence that this is the case. Similarly, parties do now have a better idea of when they can, and cannot, "smash and grab" or enforce their...