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Executive Summary
Background
The Review of the Construction Act was announced in the 2004 Budget.
Nigel Griffiths, then Parliamentary Under Secretary of State for Construction, Small Business and Enterprise, asked Sir Michael Latham to undertake a review of the Act.
Sir Michael's report was published in September 2004. It concluded that the Construction Act was generally working well but that some improvements would be helpful. According to various industry surveys, poor payment practices continue to be a major issue for many in construction.
In March 2005 the Department of Trade and Industry ( DTI), (now Department of Business, Enterprise and Regulatory Reform or BERR) and the Welsh Assembly Government published a joint consultation paper - Improving Payment Practices in the Construction Industry. In January 2006 they issued a consultation analysis which set out the proposed way forward. During the remainder of that year, working with Sir Michael Latham and other members of a DTI appointed sounding board, detailed proposals were developed.
On 20 June 2007 DTI issued a second Consultation Document jointly for England and Wales which considers amendments to Part II of the Housing Grants, Construction and Regeneration Act 1996, which would be taken through the UK Parliament by the UK Government and would affect both England and Wales.
The Construction Act also applies in Scotland and policy responsibility for the Act in Scotland is a matter for the Scottish Executive. Any amendments affecting Scotland would be a matter for the Scottish Parliament to agree.
This consultation exercise within Scotland relating to Part II of the Housing Grants, Construction and Regeneration Act 1996 and The Scheme for Construction Contracts (Scotland) Regulations 1998 is being conducted separately from England and Wales. However it does replicate the proposals in the consultation issued on 20 June by DTI and the Welsh Assembly and therefore this consultation has been limited to 8 weeks from the standard 12 weeks consultation period.
This consultation covers those proposals in detail as well as the consequential amendments that will need to be made to the Scheme for Construction Contracts (Scotland) Regulations 1998.
Proposals
We believe prompt and fair payment practice throughout construction supply chains will better enable the industry to adopt integrated working.
We are proposing to:
- improve transparency and clarity in the exchange of information relating to payments to enable the better management of cash flow;
- encourage the parties to resolve disputes by adjudication, where it is appropriate, rather than by resorting to more costly and time consuming solutions such as litigation; and
- improve the right to suspend performance under the contract.
We are proposing to do this by:
On adjudication
- improving access to the right to refer disputes for adjudication by:
- applying the legislation to oral and partly oral contracts
- preventing the use of agreements that interim payment decisions will be conclusive to avoid adjudication on interim payment disputes
- ensuring the costs involved in the process are fairly allocated.
On payment
- preventing unnecessary duplication of payment notices
- clarifying the requirement to serve a section 110(2) payment notice
- clarifying the content of payment and withholding notices
- ensuring the payment framework creates a clear entitlement to interim payment
- prohibiting the use of pay-when-certified clauses.
On suspension
- improving the statutory right to suspend performance by allowing the suspending party to claim the costs and consequential delay.
This is not wholesale reform. These proposals are intended to be proportionate amendments to the existing framework to address specific issues that have arisen during the nine years the Construction Act has been in operation. Guidance remains the preferred route to improve the operation of construction contracts and further legislative intervention has only been considered where we believe it is absolutely necessary.
We are now seeking the views of the construction industry and its clients, through this consultation process, on:
- whether this package of proposals properly and adequately addresses the weaknesses in the existing framework; and
- how we might evaluate the costs and benefits of the package.
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