(Too) gently does it

In light of Sir Michael Latham’s review of the Construction Act, the DTI has issued a consultation paper and requested responses by 21 June 2005. The paper is divided into two parts, dealing with payment and adjudication.

The first issue concerns pay, but its proposal to amend the definition of an ‘adequate mechanism for payment’ will only be time-consuming and expensive, as it is unlikely, for example, that main contractors will end up agreeing to pay their subcontractors more. But laying down a maximum period of time between a payment due date and final payment date is a sensible move. The Construction Act requires the paying party to notify the payee at least five days before the date of final payment, and it is pointless to try to remove this provision.

Set-off has been a major source of dispute for years. Although the Act provides for the submission of a set-off notice before a right to it arises, to suggest that the notice should state not only this amount, but the sum which is left after the set-off is applied, means nothing – it is change for the sake of it.

When it comes to certified pay, however, the law is silent, so I feel the paper is right in aiming to tie up those loose ends by suggesting this will only apply where the certificate identifies the amount due to the subcontractor. This will therefore apply to nominated subcontractors under JCT and management contracts.

Another welcome proposal is the outlawing of contract clauses that allow set-off from payments due on other contracts between parties.

Overdue payment is another grey area. Unless a contract specifies otherwise, the contractor shoulders the financial loss when overdue pay causes work to be suspended – amending the legislation to provide reimbursement and time to organise a return to site is a step in the right direction. However, the industry needs to clarify its views on non-payment resulting from insolvency under pay-when-paid provisions – is it acceptable or not?

To suggest that the set-off notice states the sum left after the set-off is applied is change for change’s sake

Another headache for contractors and subcontractors is the extensive costs incurred from off-site fabrication. With the massive construction programme ahead, this is likely to get worse, so contracts need to include payment for these items. Of course, there is a risk involved, so a form of advance payment bond should be implemented to protect the employer. Whether this should be a matter of good practice or a legal obligation is a matter of opinion.

On adjudication…

Contracts need to be set out more clearly – I agree the adjudicator needs more power to rule on their jurisdiction, as this enables disputes to be settled more quickly and smoothly. If a contract states that a decision of, say, the engineer, is final, this cannot be referred to adjudication – I’m sure that the industry will welcome the proposal that this clause should not be used as a way to avoid adjudication.

However I feel there is no logical reason why adjudicators should not have the same immunity as arbitrators, on the grounds that they may get exposed to third-party claims. Although adjudicators are legally required to be impartial, the Act should also demand their independence.

It seems that, despite all the proposed changes, a great deal of time and effort has been put into little more than a glorified tidying-up exercise.