As some readers will be aware, the regime for payment, notices of withholding and adjudication under construction contracts is about to change. The Local Democracy Act instituting these changes got the Royal Assent before the election and will come into force once the revised Scheme for Construction Contracts has been finalised, which is likely to happen in April 2011. In layman’s terms this means that all the construction contracts you are dealing with in future will have to reflect the amended regime for payment and adjudication. Your own standard terms and conditions will likewise need amending.
What is the LDEDC Act 2009?
The main purpose of the Local Democracy, Economic Development and Construction Act 2009 is to strengthen and improve those parts of the Construction Act 1996 relating to cash flow and adjudication. It will not repeal or replace it. A date for the commencement order required to bring the LDEDC Act into force has not yet been set.
Key Changes in Adjudication
Construction contracts are no longer required to be “in writing”. This may lead to an increase in the number of disputes over contract terms as well as those being referred to adjudication;
Adjudication provisions are still required “in writing”;
The introduction of a statutory slip rule to England, Wales and Scotland; and
The parties can no longer agree who pays the costs of the Adjudication, before Notice of Adjudication is given
Likely outcome of the changes
he removal of the ‘in writing’ requirements is likely to lead to more disputes over contract terms being referred to adjudication, particularly ones governed by the Scheme for Construction Contracts. In addition, it is probable that there will be more challenges to the Adjudicator’s appointment as well as more cases going before the Technology and Construction Court.
In terms of changes to payments, under the new rules, subcontractors are less likely to experience delays in payment as this will no longer be dependent on links to obligations under other contracts. By the same token, main contractors are likely to want to extend the payment period under sub-contracts to allow more time for payment.
The Scheme for Construction Contracts
his outlines the default provisions which apply if the parties fail to put the adjudication and payment terms required by the Act into their contracts.
The Scheme is being amended to reflect changes to adjudication and payment in the new Act and has gone through the consultation stage.
How will this affect me?
our existing terms will need to be amended to reflect the new provisions; in particular, key provisions in your terms relating to payment may become unenforceable.
Transition period
There will be a transition period whereby contracts entered into before a particular date will be subject to the old Act and those entered into after that date, to the new Act. This means that a main contractor may have some sub-contractors under the old regime and some under the new regime.
You can find a more detailed description of the changes in the attached briefing note. In the meantime, if you have any queries concerning the changes - or any other matter- please contact Philip Harris.
