Commentary Introduction
308.Part 2 of the Housing Grants, Construction and Regeneration Act 1996 (“the 1996 Act”) concerns “construction contracts”. Pursuant to section 104, these are agreements for the carrying out of “construction operations”. Construction operations include the construction, alteration, repair, maintenance, extension, decoration and demolition of buildings; preparatory work such as site clearance, earth-moving and excavation; and the installation of fittings such as heating, lighting, drainage and sanitation systems (section 105). Contracts with householders are excluded, however. As originally enacted, Part 2 only applied to construction contracts which were “in writing”.
309.Section 108 of the 1996 Act gives each party to a construction contract the right to refer a dispute to “adjudication” and requires the parties to include terms in their contract relating to adjudication. These include terms enabling either party to give notice to the other at any time of the intention to refer a dispute to adjudication; ones requiring the adjudicator to reach a decision within a certain time period; and terms providing (in the absence of contrary agreement) that an adjudicator’s decision is binding in the interim. Section 109 of the 1996 Act provides that contractors (those performing the work) are entitled to periodic payments (unless the work is or is estimated to take less than 45 days). Section 110(1) stipulates that construction contracts are to contain an “adequate mechanism” for determining what and when payments become due under the contract and are to provide, in respect of each such payment, a final date by which settlement must be made – the “final date for payment”. As originally enacted, section 110(2) required the payer to give the contractor/payee notice (in advance of each payment) of the sum which he proposed to pay.
310.If construction contracts do not contain provisions which are consistent with section 108(2) to (4) and section 110 (or, as regards section 109, the parties fail to agree upon the amounts or the frequency or circumstances of payments), the terms of the relevant Scheme for Construction Contracts apply – one Scheme in respect of contracts for construction operations carried out in England and Wales, and the other in respect of contracts for construction operations carried out in Scotland. Where either Scheme applies, such terms have effect as implied terms of the relevant contract – in effect supplying the missing contractual provision.
311.In addition, Part 2 of the 1996 Act allows a contractor to stop working where the payer owes the contractor money (section 112) and renders ineffective clauses in construction contracts which make payments conditional on the payer having been paid by a third party (section 113). As originally enacted, section 111 of the 1996 Act required the giving of an appropriate notice by the payer where the payer proposed to withhold moneys (which notice could, if various conditions were met, be the same notice as that given by the payer of the sum which he proposed to pay).