What next for the Construction Act?

The latest consultation on the Construction Act reached its second stage last month, with the government’s long overdue publication of responses to its consultation on the legislation. When the 1996 act was amended in 2011, the government proposed reviewing it after three years. However, it was six years before consultation with the industry even began. A summary of the responses to that consultation was due two years ago but, presumably owing to Brexit, was not published until this February.

Is the Construction Act fit for purpose? That is the overarching issue raised in the consultation. In the industry, the duty to produce something fit for purpose is a familiar one. We know it is vital to assess the “fitness” of a product against its “purpose”. From the consultation so far, one might question if our leaders can learn from the industry when they ask if something is “fit for purpose”.The Construction Act’s purposes were to improve cash flow and dispute resolution. Accordingly, it gave us payment and adjudication regimes.

When it comes to assessing the act’s fitness against its purpose, sadly, February’s document is only “indicative” (as it recognises). That is largely because it gives equal weight to each of the 54 respondents who generously donated their time to comment on Citizen Space. Those respondents included 21 individuals as well as big and small organisations, with a few representative bodies. As a result, it is hard to know what to make of being told that, for example, 57% of 47 respondents said the removal in 2011 of the requirement that contracts should be in writing (in order for the act to apply) created no change to the average cost of an adjudication.

The conceptual design of the act has dogged it ever since it came into force

The consultation asked 80 questions, raising issues I would divide into three categories. First, the act’s conceptual design. Second, questions over whether, if the act’s concept is retained, it nevertheless needs reworking. Third, whether – as an alternative – running repairs are warranted.

The conceptual design of the act has dogged it ever since it came into force. The act pays lip service to freedom of contract by allowing parties to contract as they wish, so long as their contract meets minimum requirements for payment and adjudication. As the act sought to combat abusive practices by some payers, it was always curious that those same payers were trusted not to impose devices that met the letter but not the spirit of the act’s minimum requirements.

For the devices that then followed, there were limits to how far the courts could go in applying the spirit (and not just the letter) of the act to strike them down. It took the amended act to try to ban some (but not all) of the surviving devices. However, February’s document tells us that even devices that have been clearly banned are still being included in contracts. These include clauses making payment conditional on the performance of obligations under a superior contract, even where there is no insolvency. Where such banned clauses do not succeed in deterring uninformed parties, there are often no material consequences for the paying party.

There would be far less scope for banned (and unbanned) act-avoidance devices to be included in contracts with a more prescriptive regime like the Australian East Coast model. However, it is hard to see our Construction Act being overhauled in this way. As so often happens with conceptual designs, once an edifice is built all those sunk costs shout loudly against any redesign.

The 2011 amendments notably reworked the original act 

Some reworking of the act is probably the most that might be expected (given that the conceptual battle seems to have ended, insofar as it was ever fought). The 2011 amendments notably reworked the original act by bolstering its payment regime. In so doing, they increased the frequency with which payers who fail to give the right notices must pay the sums applied for by their payees, without deduction. Much case law followed, emphasising the strict requirements for payment applications, payment notices and pay less notices.

The industry has invested heavily in drafting for, operating and disputing the act’s payment rules, but there is a lack of evidence on whether the act’s payment regime has met its purpose of improving cash flow – let alone that the benefits outweigh the costs. This is fundamental to assessing whether that regime is fit for purpose and whether further reworking (with its knock-on costs) is merited.

On adjudication, the data available makes it easier to conclude that the legislation is fit for purpose – although some may disagree with that conclusion. It merely needs some running repairs, such as to the approach of some nominating bodies to how they nominate adjudicators.

Even when it comes to minor repairs to the act, though, it is far from clear that we can expect governmental action any time soon. February’s document concludes by saying the government “will now take forward the post-implementation review”. Time will tell what happens next.

Rupert Choat is a barrister, arbitrator and mediator at Atkin Chambers