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ANALYSIS OF CONSULTATION RESPONSES
Chapter 1 - Outstanding Issues From The Scottish Government Report On The Consultation 'Improving Adjudication In The Construction Industry' In 2003
Consultation Proposals
- Minimising Divergence.
- Introduction of a 'slip rule' to enable the correction of errors.
1. Minimising Divergence
The support for cross border uniformity to minimise any divergence across the United Kingdom wherever possible, subject to legal differences between Scottish and English law, was unanimous by all respondents who completed the questionnaire and was also endorsed by those who provided a narrative response.
2. Introduction of a 'slip rule' to enable the correction of errors
There was undivided support for the introduction of a provision to allow the adjudicator to correct errors and omissions in their decision and 7 days was generally agreed as an acceptable period to review the adjudicator's decision.
Chapter 2 - Adjudication Framework
Consultation proposals
- Removing the requirement that the Construction Act should only apply to contracts in writing;
- Prohibiting agreements that interim or stage payment decisions will be conclusive;
- Introduction of a statutory framework for the costs of adjudication.
1. Removing the requirement that the Construction Act should only apply to contracts in writing
There was a high level of support for this proposal. It was felt that widening the scope of the Construction Act to include oral as well as written agreements was a vital step to the improving the effectiveness and reducing costs of adjudication.
The following comments were made by respondents:
"We welcome the new proposal which will reduce the costs of adjudication and thereby improve accessibility."
"We are delighted to see this proposal. This is a vital issue and so long as it is unresolved there is a danger of the whole policy of adjudication being undermined."
Our proposal suggested that certain important contractual provisions - specifically any provisions relating to a contractual adjudication scheme - will need to continue to be in writing. This was supported by 89% of respondents who completed the questionnaire and was also endorsed by those who provided a narrative response.
There were concerns that increasing access to adjudication with the removal of the requirement to agree a contract in writing would result in an increase of oral contracts in the construction industry. 62.5% of respondents who completed the questionnaire supported the view that this change is unlikely to encourage more oral or partly oral contracts in as much as the wider business benefits of contracting on a clearly recorded basis are understood. This was also endorsed by those who provided a narrative response.
2. Prohibiting agreements that interim or stage payment decisions will be conclusive
All respondents who completed the questionnaire supported an amendment to the Construction Act to prohibit agreements that decisions as to the amounts of payments whether by instalment, stage or other periodic payments are conclusive.
"The Construction Act never envisaged those types of provisions and we believe the isolated example of those practices ought to be curtailed."
This was a typical example of the statements which provided confirmation that the proposal would be welcomed by the industry.
However, supporting narrative from some respondents indicated varying views on how this amendment should be achieved.
"The proper solution is the deletion of paragraph 20a of the Scheme and (except for settlement agreement) making ineffective any provision that seeks to make a decision final and conclusive."
Some respondents identified the importance of there being a period of time, (a minimum of 28 days was proposed) during which decisions could be challenged.
It was also suggested that the reference in the consultation to the term "agreements" should be taken to mean "contract terms".
3. Introduction of a statutory framework for the costs of adjudication
There was majority support for an amendment to the Construction Act to prohibit agreements as to the allocation of the costs of the adjudication until after the adjudicator was appointed.
44% of respondents who completed the questionnaire agreed with the proposal that the adjudicator should have no jurisdiction as to cost unless the parties made an agreement to that effect after the appointment of the adjudicator. However 33% did not consider that an agreement could be entered into after the appointment of the adjudicator.
There was majority support for the adjudicator being legally entitled to claim for their fees and expenses, with 89% of respondents who completed the questionnaire agreeing. There was however a more mixed response regarding the parties being jointly and severally liable for the adjudicator's fees and expenses, with some saying that they felt that the adjudicator should have no right to deal with party costs at all.
Chapter 3 - Payment Framework
Consultation proposals
- Prevention of unnecessary duplication of payment notices;
- Clarification of the requirement that a section 110(2) payment notice should be served;
- Clarity of the content of payment and withholding notices;
- Clarity of the "sum due";
- Prohibiting the use of pay-when-certified clauses.
1. Prevention of unnecessary duplication of payment notices
There were mixed responses for the proposal to allow a notice or certificate from a third party to act as a section 110(2) payment notice with 44% of respondents who completed the questionnaire and one narrative response agreeing with the amendments. A further 56% of respondents who completed the questionnaire disagreed with this proposal for various reasons offering views that the industry would benefit from the issue of guidance and education, that this amendment would add an unnecessary complication when it has never been identified as an issue and would only affect a minority of contracts while incurring substantial costs.
Where the proposal was accepted it was suggested that there was a need to make it absolutely clear in the draft wording that:
- The third party actually has the right under the contract to issue a certificate;
- That the certificate from the third party is issued or copied directly to the payee - not an intermediary.
2. Clarification of the requirement that a section 110(2) payment notice should be served
Of the respondents who completed the questionnaire only 33% disagreed with this proposal with 22% stating they had received no complaints of any mass failing of the service of payment notices under section 110(2).
56% of respondents who completed the questionnaire agreed that the process of issuing a section 110(2) payment notice should be improved. However, where comments were provided the view was that any drafting should, if possible, be without reference to "set-off" or "abatement" as the purpose of the payment notice should be that it responds to an application for payment and should simply constitute what is to be paid and the grounds for paying that sum. This was supported in other responses where it was agreed that a payment notice should be issued whenever the payer intends to pay an amount other than that which was applied for and that the notice should include an explanation of the difference.
3. Clarity of the content of payment and withholding notices
There was clear support from 56% of respondents who completed the questionnaire to all the questions asked. However, comments provided to the proposal for combining the section 110(2) and section 111 notices were varied. A supporting comment stated:
"A revision of the payment notice would simplify procedures and provide greater clarity as to the amount due."
It was however recognised that respondents did not agree with any of the proposed amendments to the payment framework with the following comment.
"We firmly believe that the issues concerning payment would be best dealt with through guidance as opposed to amendment of the existing legislation."
4. Clarity of the "sum due"
The principle behind this proposal was broadly welcomed with only 2 respondents who completed the questionnaire rejecting it.
Some in the industry wanted to see the proposal clarified to include claims issued before the due date, (e.g. applications for payment) whether they were required or not.
5. Prohibiting the use of pay-when-certified clauses
This proposal was broadly welcomed with 67% of respondents who completed the questionnaire supporting it, although it was stated that the support was subject to the detailed mechanisms being made sufficiently robust.
The remaining 3 respondents who completed the questionnaire did not support the proposal and 2 of those raised concerns that if implemented, it would be excessive and would interfere with the parties' freedom to contract and may well 'stifle innovation in the future'.
Chapter 4 - Improving The Right To Suspend Performance
Support was unanimous for amending section 112 of the Construction Act to include provisions allowing the suspending party to:
- claim a reasonable amount in respect of costs of remobilisation;
- claim an extension of time for meeting any contractual deadlines imposed by the party in default of payment for any delay to the completion of work caused by the exercise of the right to suspend; and
- clarify that they may suspend any or all of their contractual obligations to the party in default of payment.
Chapter 5 - The Judgement Of The House Of Lords In Melville Dundas -Vs- George Wimpey
The consultation also considered what, if anything, might be done in response to the House of Lords decision in Melville Dundas v George Wimpey.
56% of respondents who completed the questionnaire agreed that the Construction Act should be amended to make it clear that other than in cases of a subsequent insolvency, the requirement for the payer to issue a section 111 withholding notice should apply.
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