Exceptional circumstances: Construction Act

When the Construction Act went through parliament there was vigorous lobbying by sections of the industry which argued that the problems of non-payment and late or unjustified set offs that the act sought to address did not exist as far as they were concerned, and hence that it should not apply to them.

These groups include those engaged in drilling and extraction of oil, natural gas and minerals, as well as the assembly, installation and demolition of plant and machinery on power generation sites.

In 2000, in the case of ABB Construction vs Norwest Holst Engineering, His Honour Judge Lloyd appeared to be convinced, as he said, that “the most thorough investigation was evidently carried out, otherwise the government could not have been convinced that certain sectors of the industry were so well organised that no regulation of their contracts was needed. One cannot but be impressed by the detail of the work done: drilling for oil and gas is excluded, but drilling for water is not; a project for tunnelling to lay a sewer or construct a railway has to be regulated, but not one requiring a tunnel for minerals”.

There has been lively debate as to the circumstances in which exemptions are or are not granted. Indeed, the state of the existing exemptions is by no means clear.

This is the issue that came before Mr Justice Ramsey on 18 May in the case of North Midland Construction vs AE&E Lentjes UK, on which a decision was handed down recently.

The dispute involved civil works on Fiddlers Ferry and Ferrybridge power stations in West Yorkshire – specifically the piling, foundation earthing, concrete, reinforcement and detailed engineering. North Midland wished to adjudicate a dispute that arose after AE&E claimed for variations, but AE&E said the nature of the works fell within exceptions granted by the act, given that the primary activity on the site was power generation and hence adjudication was not an option.

Thinking of these words in a narrow way would give the act greater power

The Construction Act does not apply to “the assembly, installation or demolition of plant or machinery”, according to section 105(c) of the act itself. But should those words be given a wide or narrow meaning? In the ABB vs Norwest Holst case, Judge Lloyd adopted the wide approach, which is that any work that is necessary for the full and proper assembly or installation of plant falls within the exception.

North Midland Construction argued for a narrower approach, which concentrated on the nature of the individual operation rather than its contribution to the works as a whole. In doing so, it relied on the 1999 case of Palmers vs ABB Power. Judge Ramsey recognised that the approach in the latter gave a more limited exemption from the act. He said it was perfectly possible, and within the statutory scheme, for a contractor’s operations to fall outside the definition of a construction operation; for example, if a subcontractor is painting, its work is not caught by the words “assembly, installation or demolition of plant or machinery”.

In resolving this issue, Judge Ramsey adopted a commonsense approach. He recognised that since the act’s purpose was generally to govern construction operations, applying a broad understanding of the terms “assembly, installation or demolition of plant or machinery” would deprive the act of effect in many cases.

Thinking of these words in a narrow way would give the act greater power, as only cases where the work was the assembly or installation of plant or machinery would be excluded. For that reason, he preferred the narrow construction and ruled in favour of North Midland Construction.

The implications of this ruling are that the exclusions granted by the act are not as wide as some earlier decisions suggested. Those working on projects involving power generation, nuclear processing or water treatment may find they have the protection of the act where previously it had been doubted. In particular, subcontractors and

sub-subcontractors carrying out elements of work that do not readily come within the description of the assembly or installation of plant or machinery would fall within the act, now that the broader construction of the exclusion of these works is no longer to be followed.