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JUNE 2016

Construction Law changes

The Construction Contracts Act 2002 (“CCA”) governs cashflow and dispute resolution under construction contracts. There have recently been amendments passed to this Act, and there are some important changes to be aware of, and a three stage implementation of the changes.

The amendments do not apply to construction contracts that were entered into before 1 December 2015, unless a contract is renewed for a further term on or after 1 December 2015, or the parties agree that the amendments apply.

1 December 2015

As from 1 December 2015 the residential/commercial distinction in construction contracts was largely removed. This significant change means that construction contracts between builders and homeowners will be subject to the CCA’s default provisions regarding payment, suspension of work for non-payment and enforcement of adjudication proceedings.

A significant practical change is that from 1 December 2015 all Payment Claims are required to be accompanied by a prescribed form that sets out the payment process (previously this form was only required on residential projects). There is also now a new form of Information Sheet which is contained in the CCA Regulations. This form needs to be attached to all Payment Claims regardless of whether it is for a commercial or residential project.

The Act still makes the distinction between residential and commercial construction contracts in respect of issuing Charging Orders, and the new retentions regime only applies to commercial construction contracts.
The other significant change as from 1 December 2015 is the removal of the distinction between determinations for payment and for rights and obligations.

1 September 2016

From 1 September 2016 the CCA will apply to architects, engineers and quantity surveyors.

The extension of the ambit of the CCA to apply to architects, engineers and quantity surveyors will allow these parties to access the default payment provisions and resolve disputes through the adjudication process.

31 March 2017

From 31 March 2017 the provisions relating to “Retentions Trust Scheme” for commercial contracts will come into effect. The scheme will only apply to commercial construction contracts over a certain value and will require the principal or contractor to hold retentions on trust for the contractor or the sub-contractor. The parties cannot contract out of this requirement. The retentions will need to be held in the form of cash or other liquid assets that are readily converted into cash. Holding the money on trust will mean that the contractor or sub-contractor will have a preferential claim if the principal or contractor enters insolvency. The ability to make a preferential claim will depend on the moneys being available and identifiable. The issue of retention moneys becoming “mixed” with other company funds remains to be resolved by the Courts in the coming years. However, to ensure compliance, the retentions should be retained in a separate account, and this should be insisted upon by the contractor or sub-contractor.

Conclusions

It is important for parties issuing Payment Claims that the invoices are reviewed and ensure that they comply with the changes that are now in force as from 1 December 2015. Architects, engineers and quantity surveyors will need to familiarise themselves with the CCA before they are brought under the jurisdiction on 1 September 2016. There will also need to be consideration of how the retention scheme will operate as from 31 March 2017. For further advice, contact us as soon as possible.