Implied terms can be tricky things - how do you know what you are signing up for if the terms aren’t expressly set out in your agreement?  And what if the terms are implied by legislation which at first glance does not obviously apply to your industry…?

Whilst most of us are aware of implied terms covering quality of goods or services or when ownership in goods passes between contracting parties, how many of us are aware of implied terms in other more industry-specific legislation?

Mention construction law and most people think of muddy fields, housing and office blocks. Equally, once a manufacturing facility is built and operational most people anticipate that their relationship with construction lawyers is over.  This is not always the case.

Although the Housing Grants Construction and Regeneration Act 1996 (amended in 2009) is widely referred to as the “Construction Act”, and it does cover those muddy fields and housing projects,  its key clauses have a much wider ambit and they will be implied into your contract by legislation if they are not expressly set out.

What does the Act cover?

The Act applies to contracts for “construction operations” as defined.  This clearly includes “traditional” construction activities including construction, alteration or repair of a building, or installation of heating power, drainage etc. What is not always appreciated are the activities within the base definition (and squirreled away in the list of exclusions) that might be missed at first glance.

For example, building a new facility is obviously “construction” but would you automatically think of its maintenance and decoration? 

What about the manufacture or delivery to site of building or engineering components, equipment, materials, plant or machinery?

The short answer is that all of those are covered by the “Construction Act” in certain circumstances. If your contract for plant also provides for installation, it is a construction contract.  So, if you order new plant and have it installed, your contract must comply with the requirements of the Act, unless an exclusion applies.

Equally, the Act applies to a “structure” forming part of the land under s104. But, what does that mean?  If a piece of engineering plant or machinery is fixed to the floor in a way that is not easily removable, it is likely on balance to fall within the Act. Therefore, a contract to install process plant or other manufacturing machinery on the shop floor can be a construction contract.

But what does this mean, and is it necessarily a bad thing?

The Act requires a construction contract to provide for interim payments, a workable mechanism for calculating what is due to a contractor and when, and provision for notifying payment amounts in advance - prohibiting deductions unless appropriate notice is given. It also requires that adjudication is provided as a method of dispute resolution. 

If the contract fails to include these requirements properly, appropriate clauses are implied as a matter of statute.  If you are not aware of the content of these implied terms you can easily become subject to requirements you did not expect and decisions of an adjudication tribunal leading to additional costs and possibly cash flow constraints.

Conversely, if your contract is properly drafted to take account of the requirements of the Act, it can work in favour of both employer and contractor, providing much-needed clarity, better cost management, and a swift, time-limited form of dispute resolution. 

The moral?  Don’t be caught out by implied terms – our construction and engineering team are happy to discuss any queries you might have regarding the application of the Act to your manufacturing arrangements.

About the author

Nichola Vine Partner

Nichola is a partner in the construction team specialising in all aspects of construction and engineering contracts and disputes.