The Construction Act: Changes to RIBA, PPC200, IChemE and ICC contracts

The latest bodies to update their standard form contracts for the amended Construction Act are RIBA, PPC 2000 and IChemE. The new ICC (which replaces ICE) contract, published in September this year, has also further been amended to address a number of issues with its original terms.

RIBA

The RIBA has published amendments (free to download) to its 2010 suite of contracts. These include Standard Conditions for the Appointment of an Architect; Concise Conditions of Appointment for an Architect and Standard Conditions of Appointment for a Consultant. The main points to note:

• The new Act allows the payee, rather than the payer, to issue the payment notice thereby allowing the payee to fix the amount due. For the most part however amendments to standard form contracts for the building and engineering works themselves have in the main been what is called “payer led” ie where the payer dictates what is due. RIBA has adopted a “payee led” approach as its amendments provide that it is the architect ie the payee who issues the payment notice. It is possible that many payers will wish to amend this.
• This approach means that whatever is in the architect’s payment notice is the sum due for payment by the final date for payment.
• If the payer disagrees with the sums in the architect’s payment notice, then it must serve a pay less notice (no later than 5 days before the final date for payment). Unlike withholding notices, pay less notices can deal with issues of value as well as any set-off or crossclaim. The pay less notice must therefore set out the sum considered due at the date of service of the notice together with the basis for calculation. RIBA has sensibly retained the requirement to set out the grounds for what is being withheld.
• The new Act provides that on the insolvency of the payee a sum due for payment does not require to be paid where (a) the contract provides that on insolvency no further sums require to be paid and (b) the insolvency occurs after the period for issuing a pay less notice has expired. The implication from this is that if the insolvency occurred before the expiry of the period for issuing a pay less notice, unless that had been issued, the sum remains due and payable. It is not at all certain that this will be the effect of such a provision of the new Act because the law of insolvency cannot be altered by this legislation. The RIBA amendments expressly state that on insolvency no payment requires to be made but say nothing about the requirement for the insolvency to occur after the period for issuing a pay less notice has expired. It would be advisable if the insolvency occurs before the period for issuing a pay less notice has expired, that a pay less notice is issued covering the non payment because of insolvency.

PPC 2000 and I Chem E

The amendments for both PPC 2000 and IChemE are free to download. Both are payer led ie it is the payer who is to issue the payment notice. One point to note about the PPC 2000 amendments is that:

• The amendments provide that the final date for payment shall be “the later of 20 working days from the due date for payment and 15 working days from the date of receipt by the client of any required VAT invoice from the constructor in the same sum as the payment notice”. Pay less notices require to be served no later than two days before the final date for payment. Where a pay less notice is served, the payee (ie the constructor) must “reissue any required VAT invoice to reflect the sum stated in such notice”. This will have the effect of bumping out the final date for payment.

ICC - Take 2

In the 7 October issue of Building problems with the new ICC conditions were highlighted (page 57). The amendments now published have addressed some but not all of these problems:

• The new conditions did not recognise that withholding notices have been replaced by pay less notices under the new Act. This problem has now been corrected – pay less notices must set out the sum due as at the date of the issue of the notice with an explanation for the sum stated as due, (clause 60(10)).
• The new conditions failed to appreciate that where the contract allows for applications for payment by the contractor, (which the ICC contract does), there is no place for a payee default notice unless the contractor doesn’t issue its application for payment. Revisals have been made to address this issue.
• Clause 60 (9) (b) has been amended to state that where the employer’s representative fails to issue a payment notice, the contractor’s statement “shall be the payment notice”. Leaving aside some potentially confusing terminology, this revisal recognises that the contractor’s monthly statement (ie its application for payment) automatically becomes the payee default notice in the absence of a valid payment notice.
• The second part of clause 60 (9) (b) talks about the contractor serving a payee default notice where the contractor has not previously submitted its monthly statement. Under this contract, the due date is linked to receipt of the contractor’s monthly statement. As such this scenario envisaged by the second part of clause 60 (9) (b) will arguably never arise.
• The timescale between the payment notice and the final date for payment remains very tight – three days – leaving a very short window for the issue of any pay less notice.

Lindy Patterson is a partner in Dundas & Wilson