Episode 95 - Housing Grants, Construction and Regeneration Act 1996

This week we will be talking about the Housing Grants, Construction & Regeneration Act 1996. This episode content meets PC3 - Legal Framework and Processes of the Part 3 Criteria.

Resources from today's episode:

 Website:

• https://www.building.co.uk/comment/a-quick-guide-to-the-construction-act-1996-changes-/5024435.article
• https://www.architecture.com/knowledge-and-resources/knowledge-landing-page/do-you-understand-how-payment-regimes-and-certificates-work
• https://www.legislation.gov.uk/ukpga/1996/53/part/II

Books:

• Architects Legal Pocket Book by Matthew Cousins
• Architects Legal Handbook by Anthony Speaight & Matthew Thorne

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Transcript

Episode 95:

Hello and Welcome to the Part3 with me podcast, 

The show that helps part 3 students jump-start into their careers as qualified architects and also provide refresher episodes for practicing architects. I am your host Maria Skoutari and this week we will be talking about the Housing Grant, Construction & Regeneration Act. Today's episode meets PC3 of the Part 3 Criteria.

So I’ve mentioned the Housing Grants, Construction and Regeneration Act in several episodes so I thought to do a dedicated episode discussing what this Act consists of and where/why it's used in construction.

Architects generally should be aware of the effects the legislation may have on contracts in the construction industry and consider it when negotiating their appointment terms with clients, as well as when advising clients on the forms of building contract which may be used to employ the Contractor and also when acting as Contract Administrator.

So the Housing Grants, Construction and Regeneration Act, also known as the Construction Act, applies to construction contracts, and came into effect in 1998 as a result of a report drafted by Sir Michael Latham in 1994 titled ‘Constructing the Team’. The aim of the act was to improve payment within the construction industry and to provide a quicker and more cost-effective dispute resolution procedure for adjudication since before the Act came into force there were many instances where money wasn’t being passed down the contractual chain from the employer to the sub-contractors and suppliers via the contractor which caused significant issues from the industry bodies which represented the subcontractors. To further improve the payment process, some amendments were made to the Act in 2011 by the Local, Democracy, Economic Development and Construction Act 2009. 

The Housing Grants, Construction and Regeneration Act, is the legislation that defines construction contracts. Which is an agreement with a person for:

• The carrying out of the construction operations, excluding drilling and mining of minerals, oil or natural gas, nuclear processing, power generation or water supply and treatment industries, or the chemical, pharmaceuticals, oil, gas, steel or food and drink industries. It also excludes contracts for the manufacture or delivery to site of various building materials, plant and machinery or components for heating, ventilation, power supply, drainage, sanitation, water supply, fire protection or for security or communication systems 
• Arranging for the carrying out of construction operations by others
• And providing their own labour, or the labour of others, for the carrying out of construction operations

Interesting fact here regarding construction contracts is whether collateral warranties are considered to be construction contracts for the purposes of Part II of the Housing Grants, Construction and Regeneration Act, which the courts determined that, depending on the precise wording and the circumstances, collateral warranties could be regarded as construction contracts under the Act meaning the parties would be eligible to refer disputes to adjudication as adjudication is a statutory procedure under the Act.

So, the Act itself consists of five parts:

• Part I provides for the payment of grants in the private housing sector
• Part II provides for specific provisions in construction contracts including adjudication
• Part III provides for the Architects Registration Board and registration matters and this part has been replaced by the Architect Act 1997
• Part IV provides for grants for regeneration, development and relocation
• And Part V provides for housing grants, energy efficiency schemes, and the dissolution of urban development corporations, housing action trusts and commissions. 

Before the 2011 amendments came into effect, the Construction Act said that construction contracts had to provide an 'adequate mechanism' for determining what payments became due and when – known as the 'due date'. The Act also said that the payer had to give notice, no later than 5 days after the due date and specify:

• the amount of the payment made or proposed to be made; and
• the basis on which the amount is calculated.

However, there was no effective sanction in place if a party failed to comply with this notice requirement and it was unclear what happens if no payment notice was provided as there was no certainty as to what sum was due under the contract. It was only the employer who could issue such notices and often the notice was considered unnecessary as it duplicated what was already contained in the certificate under the contract.

With the 2011 amendments, the Act now allows for:

• Increased clarity and certainty as to payment in construction contracts by setting out the dates for payment within the contract
• The employer or specified person must issue a payment notice within 5 days of the date for payment, even if no amount is due. Or if the contract allows, the contractor may make an application for payment which is treated as if it’s the payment notice 
• The employer or specified person must issue a pay-less notice if they intend to pay less than the amount set out in the payment notice, setting out the amount due and the basis for the calculation. The notice must be given before the date for final payment and the period in which this is to be given can be agreed between the parties. If no such agreement is made, then the notice shall be given no later than 7 days before the final date for payment in the contract and if there is no final date then it should be given in accordance with the provisions of the Scheme. 
• The notified sum to be payable by the final date for payment
• If the employer or specified person fails to issue a payment notice, the contractor may issue a default payment notice. The final date for payment is then extended by the period between when the client should have issued a payment notice and when the contractor issued the default payment notice. If the employer doesn’t issue a payless notice, they must pay the amount in the default payment notice 
• Pay when certified clauses are no longer allowed, and the release of retention can’t be prevented by conditions within another contract. For example, a contractor on a management contract must have half of their retention released when their part of the works reaches practical completion, not when the project as a whole reaches practical completion. Or payees shouldn’t have to wait to others to be paid until the other party has been paid by another third party.
• Introduction of a fairer payment regime, and improved rights for contractors to suspend their work when not paid and they may suspend any or all of their contractual obligations. This entitlement to partial suspension of contractual obligations means that suspension is not limited to the actual construction obligations, but can go beyond it to, for example, suspension of the right to insure the works or suspension of works on only crucial areas or with certain sub-contractors. Where the right to suspend is exercised, the other party will be liable to pay a reasonable amount in respect of the costs and expenses reasonably incurred by the suspending party as a result of exercising this right. This is an entitlement set out in the Act itself.
• In the case of insolvency, payment of the notified sum will not need to be made where the contract allows withholding sums due in case of insolvency and if the insolvency occurs after the expiry of the time for giving the counter-notice.
• Made adjudication more accessible for the resolution of disputes resolving disputes quickly minimising disruption to the progress of the project
• And Oral contracts can also under the amendments be considered a construction contract not just contracts in writing. 

Expanding a little on the oral contracts, to avoid having a dispute situation occur due to the contract not being in writing, some items that can considered to avoid misunderstandings is:

• Changing any standard pre-contract minutes of meeting forms and pre-contract correspondence so they expressly say ‘subject to contract’
• Aim to enter into a written contract as quickly as possible to avoid going through documents or relying on witnesses recollection of what was said to determine the terms of the contract
• And of course, try and avoid oral variations to a written contract
• Oral contracts may also prove difficult in terms of adjudication since it requires for adjudication, costs and the ‘slip rule’, which is the adjudicator's ability to correct errors in their decision, and this needs to be in writing if they aren’t then the Scheme will apply, which I will cover in a few moments. 
• Oral contracts will most probably replace letters of intent and where contracts are based on standard terms and conditions. Previously a party could not adjudicate on those sorts of agreements unless the written part contained a provision for adjudication but with oral contracts this is now possible. Hearings are more likely to take place so that adjudicators can determine what the contract actually consists of.

Now if a construction contract doesn’t contain any payment rules or if there are any missing or non-compliant payment provisions, then the Scheme for Construction Contracts Regulations will apply, which I referred to earlier, which essentially supplements the Construction Act in England and Wales and provides fall-back positions where the contract itself doesn’t include the necessary payment and adjudication provisions. Which states that the due date for payment will occur either at the expiry of 7 days following the relevant period or following a claim in the form of a written notice specifying the amount of any payments considered to be due and the basis on which it was calculated. The Scheme then provides that the final date for payment is 17 days after the date the payment becomes due. 

So referring back to Architects more specifically in relation to the Act, architects are frequently appointed to design the complete building, sometimes right down to the interior furnishings. Any design or advice that the architect provides on matters such as the design of soft furnishings, letterheads, corporate logos, and so on do not fall within the definition of construction operations. Therefore, the statutory payment provisions will only apply to the parts of the appointment that relate to ‘construction operations’ and not to the parts of the appointment that fall outside that definition. The parties are, however, entitled to contractually agree that the payment terms which are compliant with the Act apply to the entirety of the services being provided whether or not they fall within the definition of construction operations. So it's key that a formal appointment is in place stating these requirements and clarifications.

Contracts excluded from the Act include:

• Contracts of employment
• Matters identified in section 105 of the Act
• Contracts with a residential occupier
• Any other contract excluded by order of the Secretary of State

In terms of residential occupier, the architect can run through the payment processes and dispute resolution of the Act with the client and if they wish to incorporate them, then the payment terms which comply with the Act can be incorporated into the appointment. A court, however, is likely to find that it's not fair to impose a binding, fast-track dispute resolution procedure on a residential occupier who would otherwise be outside the scope of the Act.

Now looking at the adjudication rights construction contracts have under the Act: 

The Act makes the use of adjudication available to any party to a construction contract, irrespective of whether both parties to the contract have agreed to its use. If the parties are unable to agree on an adjudication procedure then Section 114 of the Act refers to ‘The Scheme for Construction Contracts’ (the Scheme), which is an adjudication process and timetable that will be imposed by default.

Section 106 of the Construction Act excluded the operation of the Act to any contract that: ‘ … principally relates to operations on a dwelling which one of the parties to the contract occupies or intends to occupy, as his residence.’

The Statutory Scheme of adjudication therefore will not be implied into construction contracts, or architectural appointments for residential works, and the adjudication clause in a standard form of contract should be struck out unless the Client agrees to adjudication. The Conditions of Appointment for an Architect for a Domestic Project 2012 states that the parties may agree to settle disputes under the RIBA Adjudication Scheme for Consumer Contracts. But the choice of procedure must be left to the client.

If a construction contract doesn’t contain act-compliant dispute resolution provisions, then the Scheme for Construction Contracts will be implied into the contract by law. The Act allows the parties:

• to give notice at any time of their intention to refer a dispute to adjudication
• Provide a timetable for securing the appointment of an adjudicator and refer the dispute to them within 7 days of the initial notice
• Require the adjudicator to reach a decision within 28 days of the referral
• Allow the adjudicator to extend the 28-day period by 14 days given both parties agree
• Require the adjudicator to act impartially
• Enable the adjudicator to take the initiative in ascertaining the facts and law
• The adjudicator's decision is binding on the parties until the dispute is determined by legal proceedings 

So to sum up what I discussed today:

• The Housing Grants, Construction & Regeneration Act 1996, also known as the Construction Act relates to construction contracts for the carrying out of construction operations
• The Act grants parties to construction contracts the right to timely payment, the ability for a party to suspend performance if payment has not been made, and the outlawing of pay-when-paid clauses
• If a construction contract doesn’t contain any payment rules or if there are any missing or non-compliant payment provisions, then the Scheme for Construction Contracts Regulations will apply
• The Act doesn’t apply to residential occupiers for works or services relating to a dwelling or flat, nor will the payment provisions or right to refer disputes to adjudication apply, unless their appointment expressly incorporates the Act
• The Act makes the use of adjudication available to any party to a construction contract