The Consequences of the Health and Safety Reforms
The Construction Contracts Act 2002 (“CCA”) came into force on 1 April 2003, and significantly reformed the law relating to construction contracts. The objective of the legislation was to dramatically change the framework of cashflow in the industry, by facilitating regular and timely payment between the parties to a construction contract. Further it prohibited conditional payment provisions in construction contracts. Under the CCA, parties do not have the ability to contract out of its provisions, and parties to construction contracts may agree to any terms and conditions regarding the number of payments, the interval between those payments, the amount of each of those payments, and the dates when each of those payments become due.
Nevertheless, since the CCA has come into force there have been a number of perceived failings and discussions around room for improvement. Through a lengthy consultation period Parliament have passed the Construction Contracts Amendment Act 2015 that came into force progressively from 1 December 2015, and will result in significant changes across the whole construction sector. This article focuses on the key areas of change to assist individuals/businesses within the construction industry in altering their policies and procedures.
The changes that occurred on 1 December 2015
Previously, only disputes concerning payment under a construction contract could be referred to adjudication under the CCA. The adjudicator’s determinations in respect of the same were enforceable by the Courts. However, the amendments remove any distinction between enforcing determinations relating to payment, and settling disputes relating to the parties’ rights and obligations, for any construction contract entered into from 1 December 2015. In consequence, the variety of disputes which typically arise between parties to a construction contract will all be covered by adjudication, and the related enforcement provisions by the courts. Therefore, disputes such as suspending or terminating work for breach, variation disputes, defective work and obligations to rectify will be covered. The legislature has sought to make the adjudication process comprehensive for all contract disputes, and susceptible to effective and efficient resolutions.
Generally, the courts cannot refuse to enter judgment and can only refuse to enter it on very narrow grounds. These are:
- there was in fact no construction contract in the first place;
- the amount payable has already been settled;
- due to a change in circumstance it is not possible to comply with the determination;
- the date specified in the adjudication for compliance has not yet passed;
- a condition imposed by a determination of the adjudicator has not been met.
The changes to occur on 1 September 2016
The second round of amendments which come into force on 1 September 2016 extend the scope of the CCA. This is so that the provisions of the CCA apply to industries that are interrelated with direct construction work such as design, engineering, and quantity surveying. This means that professional consultants within these sectors will fall within the jurisdiction of the CCA’s adjudication process. This is achieved through the amendment to the definition of “construction work” within the CCA in relation to construction work (including proposed work). It is important to note that design and engineering work only excludes interior or exterior painting or cleaning. This does raise some issues with professional indemnity policies. It is important that insurers and brokers find new methods to ensure that claims can be notified and managed quickly enough to enable effective responses under the CCA.
The changes to occur on 31 March 2017
As of 31 March 2017 there will be changes to the structure and obligations under the retention regime of the CCA. Persons who retain money will be obligated to hold such money on trust. The retention trust regime will only apply to commercial construction contracts, not to residential contracts with the home owner. Therefore, residential builders may want to insist on a similar arrangement through their terms of trade. The rules surrounding the retention trust money are unique and have been specified in advance. Retention money can be held on trust in the form of cash or other “liquid assets” that are readily converted into cash. It does not have to be paid into a separate trust account and can be commingled with other money. The payer may invest the retention money and retain interest earned, but it is liable to make good any loss to the retention money if the investment is unsuccessful. It is important for payers to keep proper accounting records and make these available for inspection if necessary.
The amendments to the CCA affect everyone involved in construction contracts – Quantity Surveyors, Business Owners, Project Managers, Consultants, Builders, Subcontractors, Suppliers, Lawyers, Adjudicators, Architects, Engineers, and Accountants. Therefore, it is important that all the interested parties work together to achieve mutually beneficial outcomes. Compliance with these new requirements is mandatory. If you require any assistance in relation to your rights and obligations under the new legislative framework, please contact GTODD LAW.