Share

CONSTRUCTION ACT CHANGES MEAN WIDE-RANGING IMPACT FOR SECTOR

Chris Arnold, construction partner at leading Scottish law firm Paull & Williamsons, discusses the importance of the comprehensive changes to the 1996 Construction Act for all contracts and professional appointments in Scotland after 1 November.

There is no doubt the Construction Act 1996 generally achieved its purpose and increased cash-flow in the industry while streamlining the process of dispute resolution. However, new provisions that came into effect at the beginning of this month will have even wider-reaching implications.

And these changes could not have come into force in a more timely manner for the north-east of Scotland, as the area shows signs of growth and rejuvenation following the global downturn.

While we experienced the effects of the recession, we are now undergoing a revival in the fortunes of the construction industry. We have seen a number of energy companies looking to develop and build new premises in the region, and we’ve collectively reaped the benefits of that increased appetite, particularly in terms of a more stimulated and stronger commercial property sector both in the city centre and in outlying business districts.

The legislative changes are designed to further improve cash-flow and speed up the process of dispute resolution. For example, the Construction Act will now apply to all contracts and professional appointments whether written or verbal. Although most commercial building contracts are in writing, variations may be agreed orally. In the past this would have been outside the Act, but such agreements are now captured.

A new payment regime has been introduced, including the requirement for a payer, or specified person, to issue a payment notice. Withholding notices have been replaced by pay-less notices, allowing the payer to revisit the value of the work in the payment notice.

Pay when certified clauses will no longer be enforceable, this now prevents monies being withheld on a subcontract on the ground that payment had not been authorised under a main contract. There are also improved rights on the suspension of work, including the entitlement for contractors to recoup time and reasonable costs.

It is clear these adjustments have specific practical and legal implications for all parties involved in design and construction.

Developers must ensure contracts and letters of appointment have been altered to comply with the new payment regime. They should also provide payment notices to quantify the amount due, serve a pay-less notice if the amount due is less than originally agreed and must also be aware of the contractor’s increased rights to suspend work for non-payment.

Main contractors have to adjust contracts to omit pay when certified clauses, for example in relation to retention, and to trigger payment must give a payment notice in default of their employer doing so.

Sub-contractors should be aware of the Act’s improved rights to enforce payment and consultants need to be mindful of their role as a specified person who can issue payment notices as well as pay-less notices.

The relevant professional bodies are taking steps to update the standard construction contracts and appointments to reflect the changes. Whether you adopt a standard form or use a bespoke document these alterations mean all companies entering into contractual arrangements in the construction sector must look even more carefully at the terms and conditions to which they agree.

145 views