Government announces consultation on Construction Act

The Government has announced two consultations. The first is a post implementation review of the 2011 changes to Part 2 of the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act). The second is a review of the practice of cash retention in construction contracts. Those who attended our recent construction update seminars in Manchester and Liverpool may recall the discussion as to whether a review of Part 2 of the Act was on the cards and whether such a review would be timely and desirable. 

Part 2 of the Construction Act deals with the requirement of having of an adequate payment mechanism in a commercial construction contract.  Certain key terms were amended in favour of the party receiving payment in the 2011 amendments to the Construction Act. The changes have been in effect now for nearly six years. Those working in the industry will immediately recognise the issues arising from the now well known ‘smash and grab’ payment claims  and the inability to obtain an interim re-valuation of those payments where the payer has failed to issue payment and/or payless notices which comply with the requirements of the Construction  Act. 

The consultation is intended to be a post implementation assessment of the effectiveness of the 2011 amendments. The consultation paper identifies three objectives for review as to effectiveness:

• increasing transparency in the exchange of information relating to payments
• encouraging parties to resolve disputes by adjudication, where appropriate, and
• strengthening the right to suspend performance. 

The paper does also note that more general questions are asked by the consultation to allow the Government to ‘gauge the extent to which the existing construction payment and adjudication framework generally is working’. Questions about ‘the affordability of adjudication, its misuse and its continuing relevance’ are also raised and it is perhaps these questions that will raise the most informative response.

We will be taking a keen interest in this consultation and intend to make submissions which incorporate our experience as solicitors as well as the experiences of our clients.

The first consultation is stated to run in parallel with a consultation on the use of retention payments in the construction industry. Its stated objectives are to gather views and information on a number of issues including:

• the effectiveness of existing prompt and fair payment measures for retention
• late and non-payment of retention
• the appropriateness of a ‘cap’ on the proportion of contract value that can be held in retention, and the length of time it can be held
• the effectiveness of existing alternative mechanisms to retentions, and
• the costs and benefits of holding retentions in a retention deposit scheme or trust account.

The responses to both consultations are due by 23:45 on 19 January 2018.