Why are some process plants not covered by the Construction Act?

A recent Court of Appeal case gave a thick ear to the folk in the process industry for pulling the wool over the eyes of parliament. It is C Spencer Ltd vs MW High Tech Projects Ltd [06/03/2020]. The three-judge court reminded us what happened when the Construction Act was going through parliament in 1996. The then government, said Lord Howie at the time, had been “got at by some big, powerful, important interests in what are called the process industries. They yielded to those pressures and in so doing lost sight of the aim of the bill.” The Court of Appeal has now added, all these years later: “Whatever the reason for it, many contracts for works which, on any sensible definition, are construction operatives, were excluded from the ambit of the act.”

MW High Tech Projects Ltd (MW) was the main contractor for the design and construction of a power plant cable of processing commercial and industrial waste and municipal solid waste. Let’s call it an energy-from-waste plant. MW placed a £36m subcontract with C Spencer Ltd (CSL) for the design and construction of the civil, structural and architectural works in the plant.

Whatever the reason for it, many contracts for works which, on any sensible definition, are construction operatives, were excluded from the ambit of the act

Their dispute was run of the mill. CSL said MW had failed to issue a correct, or any, payment notice or pay less notice. And if CSL was correct then its application for payment was payable forthwith without deduction. CSL argued that MW’s boob was a failure to issue a payment notice, which identified separately the sum due in respect of that part of the subcontract relating to construction operations only. MW had lumped everything together in the one payment notice, so that it jumbled up the works within and outwith the scope of the Construction Act. If the subcontract expressly provided for that, then CSL would be home and dry. It didn’t. It said nothing of any consequence. In which case, it’s true that a payment notice and/or a pay less notice is still required by law, but, said the first court and then the Court of Appeal, those notices need not hive off the construction operations from the process industry operations. Truth is, in my experience, it is almost impossible to build an energy-from-waste plant and differentiate the non-construction operations from the construction operations.

To be fair, those powerful interests, which “got at” government in 1996, were a tad fearful of what the new act might land in big players’ laps. Damn it, the employers wouldn’t be able drag things out about paying the main contractor. Some folk thrive and survive on artificial disputes. The act winkles out those naughty boys.

In a case shortly after the act came into force, Judge Humphrey Lloyd QC in ABB Power Construction Ltd vs Norwest Holst Engineering Ltd [01/08/2000] brought home the irrational distinctions of “non-construction” operations outwith Construction Act. That’s the position when construction steelwork is carried out on a site where the “priority activity” is, or will eventually be, of pharmaceuticals, oil, gas, steel, food or drink. Why?

Don’t for one moment think that Judge Humphrey Lloyd QC descended into taking the mickey. His judgment is chock full of praise for the officials of the Department of Environment, who seemingly “had unrivalled knowledge of the construction industry”.

The wide immunity given to work in, for example, the water, oil and gas industries must be seen as a tribute to them (and for all who carry out construction work for them) […] for the absence of malaises, which have been found to bedevil others

Seemingly too, “A most thorough investigation was evidently carried out for otherwise the government and parliament could not have been convinced that certain sectors of the construction industry were so well organised that no regulation of any of their contracts or subcontracts (at whatever level or tier) was needed. Indeed, one cannot be but impressed by the detail of the work done, presumably by officials: drilling for oil and gas is excluded, but drilling for water is not; a project for tunnelling to lay a sewer or to construct a railway has to be regulated but not a project required for a tunnel for minerals; installing plant for nuclear processing and power generation or for water and effluent treatment is excluded, but not plant for an incinerator. The wide immunity given to work in, for example, the water, oil and gas industries must be seen as a tribute to them (and for all who carry out construction work for them) either for the absence of malaises, which have been found to bedevil others, such as the prevalence of disputes and the presence of ‘pay-when-paid’ clauses or for the fact that the reforms required by the act were not needed or had been carried out.”

The judge finished by saying: “Moreover, it is two years since the act came into force and no alteration has been thought necessary under the powers given by that part of the act.” See, I told you the judge was not taking the mickey. And now, some 20 years on, the immunity still exists. But watch out. This recent case of C Spencer Ltd vs MW High Tech Projects Ltd was at the very high level of the Court of Appeal. Is that important enough for our civil service to be prodded to remove the immunity? Come on, parliament, a shove is necessary.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple