Out-Law / Your Daily Need-To-Know

Oral construction contracts come under Construction Act as changes come into force

03 Oct 2011, 12:18 pm

The Construction Act will now apply to oral as well as written construction contracts in England, Wales and Scotland The change will affect the use of letters of intent and contracts based on standard terms and conditions which are supplemented by oral agreements.

The amendments also affect the statutory payment provisions, adjudication and the right to suspend a contract which comes from Part II of the Construction Act 1996 .

Also introduced is an adjudicator's right to amend clerical errors in his decision. The Scheme for Construction Contracts has also been changed . The changes have been made by Part 8 of the Local Democracy , Economic Development and Construction Act and took effect from 1 October 2011 in England and Wales, and from 1 November 2011 in Scotland.

Adjudication, a more informal procedure for disputes than full litigation, could previously not be used if the contract was oral or partly oral .This has now changed. This means that adjudications may now be more drawn out and expensive.

It is likely that adjudicators will be asked to look at whether the contract between parties was entirely written or whether it was in part oral and this may lead to a requirement that witnesses give evidence to the adjudicator. It also impacts on the drafting of contracts.

The Act also changes the payment procedures used in construction contracts. The terminology has changed but so also has the effect of notices. The process is now more streamlined but care will need to be taken if the amount a contractor asks for is different to the amount the payer thinks is due. The changes introduce a new "pay less " notice, as well as a second chance for employers to decide to pay less.

Companies entering into construction contracts, whether as employer, contractor or subcontractor will have to be aware that paperwork needs to be correctly processed and contain accurate information in order for the new payment processes to work smoothly.

Payment clauses of contracts will have to be redrafted to reflect the changes in the law. The standard forms of contract used in the industry have in the main been amended to reflect the changes .Care will be needed, though, when contracts have been entered into before the law changed but sub-contracts have been entered into under the new law.

Those who are not being paid now also have an improved right to suspend work. This suspension no longer has to be of the whole contract works, so is therefore a more effective threat.