Part 8 of the Local Democracy, Economic Development and Construction Act 2009 (“2009 Act”) makes a number of changes to the payment and adjudication provisions in Part 2 of the Housing Grants, Construction and Regeneration Act 1996 (the 1996 Act).

The 2009 Act will come into force on 1 October 2011 for England and Wales and on 1 November 2011 in Scotland by means of Statutory Instruments.

The key changes under the 2009 Act are:

Oral Contracts

Part 2 of the 1996 Act is being extended to oral contracts and to those that are partly oral and partly in writing.

Adjudication

Contractual clauses allocating, in advance, the whole cost of the adjudicator’s fee to one party will become ineffective. The intention is to ensure adjudication is available to any party to a construction contract as Parliament intended..

Correction of Typographical Errors

The adjudicator will be given power to correct a clerical or typographical error in his/her decision.

Changes to Payment Framework

“Pay when Certified” – the timing or entitlement to payment can no longer be conditional on the issue of a payment certificate relating to the progress or completion of work under another contract in the same supply chain.

“Payment Notices” - the payer must issue a payment notice within 5 days of the payment due date. The payment notice must specify the sum due and the basis for the calculation. If the payment notice is not issued within the required timeframe by the payer, then the payee may issue a ‘default’ payment notice. If the payer fails to make payment or respond to the ‘default’ notice, the payee may suspend performance of his obligations.

“Pay Less” Notices – the payer may issue a “pay less” notice when he receives the Payment Notice. This will replace a notice of withholding as previously required. The “pay less” notice must identify the different amount the payer intends to pay and the basis for the calculation. If the payer fails to issue a “pay less” notice, he must pay the amount shown as due in the payment notice.

Suspension of Performance

A contractor may suspend all or part of its obligations of performance as a result of non-payment. In addition, under the 2009 Act, a contractor can recover a reasonable amount in respect of costs and expenses resulting from the exercising of his right of suspension.

Excluded Contracts

Part 8 of the 2009 Act also makes changes to Scottish Ministers’ power to exclude specified contracts from the operation of Part 2 of the 1996 Act. Agreements entered into under the public finance initiative are themselves already excluded from the operation of the entirety of Part II of the 1996 Act. The new rules will also exclude first tier sub-contracts entered into under an excluded PFI contract from the operation of the 1996 Act.

For further information, contact Keith Bishop, Karyn Watt or Pat Loftus at Anderson Strathern.

This bulletin is for general information only and does not constitute legal, investment or other professional advice. Please contact us should you require advice on any particular legal issue. Anderson Strathern LLP accepts no responsibility for any loss that may arise if reliance is placed on any information or opinions expressed in this bulletin.