Published by: Specialist Engineering Contractors' Group

34 Palace Court
London

W2 4JG
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CONUIENUS

INTRODUCTION PART 1
Requirements of the Code of Procedure for the Selection of Sub-Contractors

5 9

PART 2
Housing Grants, Construction and Regeneration Act 1996

23

PART 3
Scheme for Construction Contracts

51
71

PART 4
Procurement & Contractual Guidance for Government Projects

ANNEX I
Specimen Letters and Notices

75
87

ANNEX I1
Suggested Adjudication Clause & Adjudicator Agreement

ANNEX I11
Tables of Payment Cycles under the Scheme

95 99

ANNEX IV
Does your Contract Conform to the Housing Grants etc Act 1996 - A Checklist

This Handbook is a digest of all the new requirements which are now applicable to the tendering and contracting processes. Although it is intended for the situation where the contractor is tendering for work to be carried out under a sub-contract, most of the content is also relevant where the contractor is acting a s a main contractor, direct contractor or trade contractor. It should be used as a quick and practical reference guide when tendering and entering into con tracts. At the back of the Handbook there are specimen letters and clauses to assist in complying with the new requirements.
Part 1 of this Handbook deals with the procedural requirements placed upon main contractors and sub-contractors during the tendering process. These are contained in the Code of Procedure for the Selection of Subcontractors ("the Code") published by the Construction Industry Board on 28 April 1997. All sides of the industry - including Government - are represented on the Board and, therefore, the Code has the backing of clients, main contractors and sub-contractors. The Board intends that all parties in the industry shall apply the provisions of the Code.

Previous page is blank

IN~I IRODUCrlON
_ _ _ .
_ _ _ _ I

Part 2 explains the requirements of Part I1 of the Housing Grants, Construction and Regeneration Act 1996 (referred to in the text as "the Act"). When tendering and at the stage when contracts are awarded, it will become necessary to ensure that the contractual documentation is in conformity with the Act. If it does not comply with the Act in relation to at least some of the payment obligations and adjudication, the contractual provisions may be displaced by at least some of the provisions of the Secretary of State's Scheme for Construction Contracts ("the Scheme"). Although the Scheme is contained in rules issued under the Act - the Scheme for Construction Contracts (England and Wales) Regulations 1998 - it has the same legal force as the Act. Similar reguIations exist for Scotland and Northern Ireland. The provisions of the Scheme are explained in Part 3. Part 4 deals with matters which are specific to procurement and contracting in the public sector. Since the publication of Constructing the Team by Sir Michael Latham in 1994, the Government, as recommended in that report, has undertaken to be a best practice client. In this role it should ensure that Government Departments adhere to good practice but, also, it has undertaken to

encourage the private sector to follow suit. Government procurement policy has undergone a radical change since the publication of two reports on public sector procurement. The first was Setting New Standards published by the Treasury in 1995 and the Levene Report also published in 1995. Both reports require Government procurers to place more emphasis on value for money rather than on lowest price. Therefore, factors such as costs in use and life cycle costs should be taken into account as much as initial capital costs. It is one thing to have all these requirements in place but improvements in tendering and contractual practices will not be achieved if they are to be ignored. Therefore, any examples of non-compliance with the Code and the Act should be forwarded to your trade association. This will help in the process of reviewing the operation of both sets of requirements. This Handbook has been produced in association with the Construction and Engineering Group of the London Office of Eversheds, the national law firm. In the writing of the Handbook, much assistance has been given by Roger Button, partner in the Construction and Engineering Group. Needless to say, any errors which remain are the sole responsibility of the publisher.

'

INTRODUCTION

Comments on this guidance will be welcome. They should be addressed to: Rudi Klein LLB (Hons)(Lond),Barrister, Cert. Ed. Chief Executive Specialist Engineering Contractors' Group ESCA House 34 Palace Court Bay swater London W2 4JG If assistance is required in relation to any of the matters in this Handbook, it should be sought from your trade association. If further help is required, Roger Button is contactable at Eversheds, Senator House, 85 Queen Victoria Street, London EC4V 4JL, Tel:0171 919 4500.

10

1 : CODE OF

PRAC'I'ICE FOR SELECTION OF SUB-CONTRACTORS

QWALOFOCAUOON

Main contractors to follow a formal and systematic qualification process as a preliminary to compiling tender lists (if they neither maintain nor have access to an approved list).[2.4] Criteria for qualification to include work quality; past performance and overall competence; health and safety record; financial stability and insurance cover; size and resources; technical and organisational ability; ability to innovate.[2.3] Main contractors to regularly review their list and notify any additions or removals.[2.5]

POINTS TO NOTE The Code applies to sub-contracts / sub-sub-contracts of more than 10,000 (excluding VAT). A national qualification system called Constructionline has been developed for use by the public sector. A single qualification document is likely to be introduced for the public I sector.
I

11

Main contractors to draw up preliminary list (eg, from an approved list of qualified sub-contractors).[2.6] Tenderers on preliminary list to be asked if they are willing to tender.[2.8] Tenderers to be assured that Code will be applied.[2.8] Potential tenderers to be given sufficient information to enable them to decide if they are willing to tender.[2.9] Any briefing sessions must have standard agenda to ensure consistent treatment.

NR: The figures in parenthesis refer to the paragraph numbers in the Code of Practice for the Selection of Sub-Contractors.

POINTS TO NOTE The information to potential tenderers should include: - job name and location;
- nature, scope and approximate value

12

1: CODE PRACTICE SELECTION OF FOR 01; SUB-CONTRACTORS

of the sub-contract works including reference to the extent of any design work required;
the likely dates and duration of both the tendering process and the subcontract works; the number of tenderers being invited to submit a formal tender; whether the main contractor is already being appointed or is also tendering; the main contract tender date; the approximate value and period of the main contract, if known; whether, and how, any costs of tendering may be shared; whether the tender will be based on bills of quantities or other pricing documents or on specification and drawings; the selection procedure and selection criteria; the main and sub-contract conditions; the names of the client and the relevant consultants.

Main contractors to produce draft tender lists and seek confirmation from potential tenderers of willingness to tender.[2.13] Potential tenderers to notify unwillinrzness to tender before issue of full tender enquiry documents.[2.13] Maximum number of invitations to tender not to exceed 6 in respect of constructhnstall, only (for design only maximum number is 4 and for design a n d construct it is 3).[2.15] If minimum number of tenders is received contractor should not seek more. Design only - 3; construct only - 4; design and construct - 2.[2.15] Potential tenderers to reconfirm willingness to tender if tender documents not received within 3 months of initial confirmation of willingness to tender.[2.18] Main contractors to identify and notify reserve tenderers - maximum of 2 reserves to be invited to tender if original tenderers drop out but must have sufficient time in which to tender.[2.16/2.17] POINT TO NOTE In no case should the maximum number of tenderers exceed six.

14

1: CODE OE

PRACTICE FOR SELECTION OF SUB-CONTRACTORS

TENDER ENQUIRY DOCUMENTS

Tenderers to be informed if information is approximate.[3.1] Level of detail required in tender submission to be clearly stated and it should be indicated if priced schedules are required as well as a lump sum price.[3.1]

POINTS TO NOTE Annex I to the Code lists the minimum information to be included in tender documentation assessment criteria (should have regard to value for money rather than lowest price); contract conditions and amendments to standard forms; payment terms (cash retentions or retention bonds, advance payment for materials, security of payment and protection against nonpayment); approximate dates for commencement and completion of subcontract works programme.
I

With regard to amendments to standard forms, reference should be made to Points to Note under Tender Acceptance.

15

10 weeks for design and construct; 6 weeks for construct only and 3 weeks for design only.[3.5]

POINTS TO NOTE The time for tendering should take account of bank holidays. The above periods are suitable for most projects but extras time could be required in certain circumstances, eg., where products or materials have to be obtained from distant or unfamiliar suppliers.

16

1: C@DE OF PRACTICE

FOR SELECTION OF SUB-CONTKACTORS

_ -

TENDER ONVOUAUOONS Tender invitations to be issued on the same date or all tenderers and should state whether alternative tenders are acceptable in conjunction with (but not instead of) compliant tenders.[3.7] Tenderers to acknowledge receipt of documents and confirm willingness to supply compliant tende~l3.71 The tender invitation should also state whether tenderers are to be interviewed and, if so, for what purpose and at what stage - interviews must not involve second round bidding.[3.8] Not later than seven days before date for submission of tenders, tenderers should submit in writing any clarification which they may require.[3.9] The main contractor should inform all tenderers in writing of its response to requests for clarification.[3.9] If the tender documentation is, consequently, amended, all tenderers must be informed.[3.91

POINT TO NOTE The Code states that its provisions are designed to encourage compliant tenders.

il

__

Under no circumstances should tender prices be disclosed to third parties by the main contractor before the award of the sub-contract. Use of "cover prices" is a breach of confidentiality.[3.12] Tenders to be submitted i n sealed packages and clearly labelled a s tenders for the works; identification of tenderers' names is not permitted.[3.13] Tenders should be kept in a secure place and only opened on the date and time stated for receipt of tenders. When opened, forms of tender should be signed and prices should be listed against the names of the tenderers. The person opening the tenders should sign the list.[3.131 Bills of quantities should oiily be completed if they were in the tender documentation and it is also required that they be part of the tender submission. [3.14]

POINT TO NOTE It is suggested those inviting tenders selfcertify to their tenderers that these requirements have been met.

18

1: CODE OF PRACTICE

FOR SELECTION OF SUB-CONTRACTORS

-

I
~

r!ABE BENDERS
0

Tenders received after the date and time specified for return of tenders will not be accepted. [3.15]

BENDER ASSESSMENU
0

Tendering enquiry documents to provide tender assessment criteria.[4.1] Weighting factors to be decided in advance, used consistently and a record kept of scores awarded during the assessment.[4.1] To ensure parity of tendering, non-compliant tenders to be rejected.[4.3]
Unsolicited tenders are unacceptable. [4.5]

Any mathematical errors to be notified to the tenderer who should be asked whether he stands by his tender price. [4.6] The next preferred tender can only be approached if the preferred tenderer withdraws or post-tender negotiations break down.[4.9]

In general, tender prices can only be changed in exceptional circumstances; eg, where the programme or scope of the works in respect of specification, quantities, programme have changed or where more information has become available.[4.11]
Where a preferred sub-contractor's tender is used in a main (or principal subcontract) tender submission, the sub-contractor should be notified.[4.12]

The identity of the sub-contractor whose price has been incorporated in the main contract tender should be notified to the client unless the client has indicated that this s not necessary.[4.12]

POINT TO NOTE The provisions in emboldened typeface taken together - are designed to combat

'dutch auctioning'.

20

1: CODL PKACTICE S E L ~ C T IOFN OF 1.017 O SUB-CONTRACTORS

___
I

Where a main contractor has submitted a sub-contract tender price as part of the main contract tender which is accepted, he should also accept that sub-contract tender price. [5.1] Formal notification should be sent to the preferred tenderer following acceptance of the main contract tender.[5.2] Once a main contractor has accepted the sub-contract tender price, acknowledgement by the preferred tenderer is required.[5.3]

A list of compliant tender prices and tenderers should be made available to tenderers on request after a sub-contract tender has been accepted (names of tenderers should not be matched to prices).[5.4]
Unsuccessful tenderers should be informed and arrangements made with them to destroy or return their documents.[5.5] Main contractors to prepare formal records of selection of preferred tenderer.[5.61

A key principle in the code is that suites of contracts and unamended standard forms (compatible with other contracts in the suite) from recognised bodies to be used.
The identity of the sub-contractor whose price has been incorporated in the main contract tender should be notified to the client unless the client has indicated that this is not necessary.[4.12]

POINTS TO NOTE The procedures will be different according to whether a main contractor is incorporating sub-contract tenders as part of his tender or is inviting sub-contract tenders post-main contract tender. It is not clear what is meant by "recognised bodies" but main contractors' own forms must not be used.

PART 2 HOUSING GRANTS,

CONSTRUCTION AND
REGENERATION ACT
1996

24

2: HOUSING GIIANIS,
-_ _ l ~ -

CONSTIIUCTION ANI1 RECtNtlIATION

ACT 1996
~ _ _ _ _

__

_ _ _ _ _ - _ I _ _ I _ I

SCOPE OF UWE ACT

Section 104

The Act applies to a construction con-

tract.
0

A C O ~ Z S ~ Y U C ~ ~ O ~ Z ~ Y U C ~ an agreement CO~Z is for the carrying out of construction oper-

ations.
0

It is immaterial that the agreement envisages the carrying out of construction operations by others such as sub-contractors or sub-sub-contractors.

A construction contract includes agreements to carry out design or surveying work, or to provide advice on building, engineering, interior or exterior decoration or on the laying out of landscapes in relation to construction operations.
If the contract includes both construction operations and other matters, the Act will only apply to those activities which constitute construction operations. The Act [Construction Contracts (Northern Ireland) Order 19971 will still apply even if the applicable law of the contract is not English law, Scots or Northern Ireland law, provided that the construction operations are taking place in England, Wales, Scotland or Northern Ireland.

2:HOUSING CIWNTS, CONSI'IIUCTION RI:C;ENIII:A'I'ION ANI)

Acr I996

25

POINTS TO NOTE The Act only applies to contracts entered into after 1 May 1998 which was the commencement date of Part I1 of the Act. In Northern Ireland the Order applies to contracts entered into after 1June 1999. The Act will only apply if there is an agreement or contract. For example, if work has commenced under a lettev of intent there is a risk that this may not be considered a contract particularly if there remains uncertainty over payment terms and the scope of the work to be done. Although a construction contract is a contract for the provision of work and materials, the Act will also encompass agreements which are solely for the purpose of providing design work or advice. The Government has introduced an Exclusion Order which confirms that certain contracts do not come within the Act. These include, for example, contracts under the Private Finance Initiative which are, in essence, con-

26

2: HOUSING GRANTS, CONSTRUCTION AND REGENERATION 1996 ACT

cession contracts under which a contractor is given the right to operate a public sector facility which he lhas designed and constructed. However, sub-contracts for construction operations coming under PFI agreemdnts will fall within the scope of the Act. I More significantly, the Order excludes some finance and development agreements, and performance bonds.
~

Section 105

Construction, alteration, repair, maintenance, extension, demolition or dismantling of buildings/ structures (whether permanent or not) or any such works attached to land and thus, forming part of it. Installation in any building/ structure of 'yittings" including H&V, plumbing and electrical systems, fire protection, security and communication systems. cleaning of External / internal buildings / structures if done in the course of their construction, alteration, repair, extension or restoration.

Activities which are a n integral part of or preparatory to or are for finishing the above operations (eg, scaffolding, site clearance, landscaping etc).
@

Painting/ decorating internal / external surfaces of any building or structure.

POINTS TO NOTE The definition of "construction operations" is extremely wide; most activities are included from roadworks to reservoirs and from pylons to pipelines. Other examples of "fittings" include lifts, control systems and closed circuit television. The Act includes all kinds of operations such as dredging, exploration work and the provision and relaying of services by utilities.

28

2: HOUSING GRANTS,

CONSIXUCTION A N D REGENERATION

ACT 1996

EXCILUSOONS 5ROM CONSTRUCTION OPERATIONS

Section 105
0

Drilling for or extraction of oil, natural gas, or minerals. Assembly, installation or demolition of plant / machinery or erection/ demolition of supporting steelwork on process plant sites where the primary activity is: - nuclear processing, power generation and water or effluent treatment - production / transmission/ processing or bulk storage of chemicals, pharmaceuticals, oil, gas, steel, food and drink Manufacture or delivery to site of building/ engineering components / equipment / materials / plant / machinery or components for H&V, plumbing, electrical, fire protection or security systems. Making, installation or repair of artistic works.

POINTS TO NOTE
0

Associated building, civil engineering and specialist works on process plant sites are included. A construction operation, must involve both the supply and

installation of machinery, equipment, components etc. Supply only is excluded. Beware of contractual arrangements which seek to have separate contracts for supply and for fix/install since only the latter will receive the protection offered by the Act.

30
- ___

2: HOUSING GRANTS,
I__

CONSIRUCTION AND

REGENERATION 1996 ACT

I__

__

___

I I ;

Section 106

The Act does not apply to contracts with residential occupiers. Such a contract must be one which principally relates to operations on a "dwelling" which the client occupies or intends to occupy as his residence.

"Dwelling" means a dwelling-house or a

flat.

POINTS TO NOTE I The Act will, however, apply to subcontracts (egr for plumbing, electrical works or windows installation) sublet under the main contract with the residential occupier.
I

Speculative building will fall within the Act since the developer will no$,be occupying the buildings.
j

2: HOUSING GIIANTS,
-. ... . . .

C O N S T R U C T I O N ANI)

RIKXNERATION .I996 ACI'

31

- .. .

The contract does not have to be signed by the parties. The contract can be made by exchange of written communications. The contract can be evidenced in writing. The contract will still be in writing where reference is made to written terms in word of mouth or oral negotiations. Writing includes recording by any means.

Section 107

POINTS TO NOTE The definition of "writing" should not, in practice, pose too many problems since it is wide eg, a telephoned acceptance of a written quote will suffice. However there may be attempts to insist on word of mouth or oral agreements without any reference to written terms. An agreement is evidenced in writing if, for example, the parties have reached an agreement orally and subsequently, with the permission of the parties, it is recorded or written down.

~~

32

2' HOUSINGI i A N I b , G

CONSrliUCI ION AND

REGENCKATION 1996 ACT

___
~

Where there are adjudication/ arbitral/legal proceedings in which a party claims in a written document that there was a an oral agreement which is not denied by the other party, such agreement is deemed to be in writing.

ADjUDDOCAUOSN

Each party has a right under the Act to refer a dispute or difference under a contract to adjudication; this includes subcontracts, sub-sub-contracts and consultan ts' ay poin tmen ts. The contract must provide a procedure which complies with the list of requirements in section 108 (2). The requirements are as follows:
-

Section 108

A party must be free at any time to give to the other notice of his intention to refer a dispute to adjudication. (see Annex I) The contract should provide a timetable with the aim of having ail adjudicator appointed and the dispute referred to him within 7 days of the above notice. (see Annex I) The adjudicator must be required to reach a decision within 28 days of referral or longer if following referral, the parties agree. The adjudicator should be permitted to extend the 28 day period by u p to 14 days if the party referring the dispute consents. A duty must be imposed on the adjudicator to act impartially.

34

2: HOUSING GRANTS, CONSTRUCTION REGENERATION 1996 AND ACT

_____
-

_______-

- ~ ~ -

The adjudicator must be permitted to exercise his own initiative in finding out the facts and the law.

In addition, the contract must require that the adjudicator's decision remains binding until the dispute is resolved in court, by arbitration (if there is an arbitration agreement) or by agreement between the parties. The contract must exempt the adjudicator together with his servants or agents from liability unless he is acting in bad faith.

If the contract does not include the above requirements, the Scheme will apply.

POINTS TO NOTE The statutory right of a party at /any time to refer a dispute to an adjudicator cannot be contractually waived or excluded; but, beware of contracts which provide that a dispute does:not exist until the parties have exhausted prescribed procedures for resolving any problem or "dissatisfaction". Adjudication is intended to be a cheap and speedy method of sorting out disputes - it is a stop-gap process and, therefore, the subject matter of dispute

2: HOUSING GIIANTS, CONSI'IIUCI'ION) ANI

-

RIXXNHIAIION

A c r 1996

35

may be re-heard at a latter stage in a court or arbitration unless the parties decide not to pursue the dispute beyond the adjudicator's decision.
e

Pre-contract matters are outside the powers or jurisdiction of the adjudicator eg, any dispute in connection with a tender matter. Check the contract to establish whether an adjudicator is named or, if not, an appointing body is named; if an adjudicator is named it will be essential to ensure he/she is wholly independent of the other party. Some professional indemnity insurers will require this. The contractual procedures should not be excessively formal or longwinded since this could provide opportunities for attacking the adjudicator's decision on the grounds that he has failed to comply with some minor procedural requirements. (see Annex 11) There is no statutory requirement for adjudicators to give written reasons for their decisions. A requirement to give reasons may become a twoedged sword since it could provide ammunition for attacks on the

36

2: H O U S l N G

GRANTS, CONSTIIUCIION A N D

RECENEIIATIONc r 1996 A
. .. ., -

__

adjudicator's decision, thus delaying enforcement. On the other hand, an insured may be unable to substantiate a claim against his insurers without those reasons.
0

There is very little in the Act on enforcement of adjudicators' decisions except: - the decision is binding until the dispute is finally resolved by agreement, judgment of a court or award of an arbitrator, and; - under Section 1 1 (4) of the Act an 1 adjudicator's decision that the whole or part of a disputed "set-off" amount is to be paid to the payee, must be complied with within 7 days of the decision or by the final date for payment whichever is later. Exercise vigilance if there is an arbitration clause in the contract. It is likely to require that all disputes connected with the contract will have to go to arbitration. This could cause particular problems in the context of applications to enforce adjudicators' decisions. THE ENFORCEMENT OF ADJUDICATORS' DECISIONS SHOULD BE EXCLUDED FROM ARBITRATION CLAUSES.

37

If you have professional indemnity insurance (or, possibly, product liability insurance) to cover design liability and / or a contractor's "all risks policy", you must comply with the notification provisions in the policy. They normally require that you notify the insurer as soon as you become aware that there are circumstances which could give rise to a claim against you. Notification should be made (at the latest) immediately after you are informed that the other party intends to submit a dispute to adjudication or is making a claim against you in adjudication proceedings. Insurers will insist that you - DO NOT agree contractual provisions making the adjudicator's decision final and binding. - DO NOT agree to the adjudicator making his decision on grounds other than legal grounds (insurance policies require that legal liability is established). You should be aware that the adjudication rules published by the Technology and Construction Solicitors' Association (TeCSA) - formerly the Official Referees Solicitors'

2' HOUSING GRANTS,

CONSTliUCTfON A N D
~

REGENERATION 1996 ACT

~ ~

l l l _

_ - l _ _ _ _ _ _ l _ - - _ _ ~

Association (ORSA) - allow the adjudicator to base his decision on "his fair and reasonable view" of any ascertained facts and law in the event that he is not able to decide the legal entitlements of the parties within the constraints of the adjudication process.
0

Watch out for contractual provisions stating that either party will, in any event, be liable for the whole of1 the adjudicator's fees and expenses! The liability for these should be decided by the adjudicator althoughll as between themselves and the adjudicator, the parties will be jointly and severally liable for his fees.
I

Other aspects of adjudication are dealt with in Part 3.

2: HOUSING GRANTS, CONSTRUCI'ION ANI1

I<IIGENIX~\TION ACT

1996

39

There is a statutory right to be paid in instalments, stages or periodically (eg, monthly); it will not apply if the duration of the work is less than 45 days The amounts of each payment and intervals at which payment are to be paid remain matters for the parties.

Section 109

POINTS TO NOTE It must either be specified in the contract that the work is to be less than 45 days or otherwise agreed between the parties. It should be noted that, for example, the contract could last for one year but the number of days on which the work is actually carried out is under 45 - there is some doubt about whether the 45 days refers to the number of working days or the number of days between commencement and completion of the work. In fact, there is nothing to be gained in accepting a contract term which states that the work is to last less than 45

40

2 HOUSING GRANIS, CONSlRUCl ION A N D

REGENLRATION ACT 1996

-

__

days or otherwise agreeing that the work is of less than 45 days duration.
0

The right to instalment payments is confined to any work under the contract and, therefore, there is some doubt about whether it will apply to all amounts due under the contract (eg, in respect of variations involving changes to access, location and hours or claims for loss and / or expense). The right to instalment payments is available in respect of any work under the contract which could include design work and off-site fabrication. BEWARE OF LENGTHY PAYMENT CYCLES WHICH MAY BE INSERTED TO REDUCE THE IMPACT OF THE ACT (payment periods should generally be monthly although this would not necessarily apply where payments are linked to stages or milestones reached). The statute does not dictate the amount of instalments to be paid or when they shall become payable but if there is no such provision the Scheme will apply. This provides for ingtalments at 28 day intervals (see page 65).

I -

____

___

I -

2: HOUSING CILANTS, CONSTRUCI'ION RIKXNI~IUTION Acr I996 ANI)

41

ADEQWAUE MECWANOSM FOR PAYMENU

The Act requires that all contracts have an "adequate mechanism" for determining w h a t payments become due and when. All contracts must have a '?final date" for payment in respect of each due payment. All contracts must require that the payer issues a notice within 5 days after the due payment date indicating the payment made (or to be made) and the basis of the calculation.

Section I10

POINTS TO NOTE "Adequate rnechaizisrn" is not defined but

contracts should clearly identify: the dates on which payments become due; - how payments are to be ascertained; - who values the work. The final date for payment identifies the end of the "period of grace" from the due payment date in which payments are to be made (eg, 17 days in the standard building sub-contracts). It is up to you to agree on the period but beware of attempts to have periods which are
-

42

2: HOUSING GRANTS, CONSTKUCTlON AND REGENERATION 1996 ACT

-~

--

much longer than the standard.

0

The 5-day notice should set out the amounts which are due in respect of: - work in progress - materials on site (if not included in the above) - materials off site - variations - amounts (if any) for loss and/or expense - fluctuations (if any) - any other amounts that might be due I I under the contract The 5-day notice should still be provided if money has not been uaid because the payer has a set-off or a dispute about the valuation.
I
I

If the following matters are not included in the contract, the Scheme will apply:
- an adequate mechanism

a final date for payment - a 5-day notice. There is no direct penalty for failing to comply with the contractual requirement for the 5-day notice. However, ithe absence of such notice may prejudice the payers position in any adjudication proceedings.
-

2: HOUSING GRANTS, CONSTIUJCTION RIXENIIRAIION 1996 AND ACI

I

43

WOUWWOILDONG PAYMENU

Monies cannot be withheld after the final date for payment unless the payer has given an effective notice of intention to withhold payment. Such notice must be given by the fiizal date for payiiieizt which has already been explained.

Section I I I

A notice will only be effective: - if the amount to be withheld is indicated together with the reason for withholding it; - if, where there is more than one reason, each has been listed together with the amount relevant to each; - if it is given no later than a period prescribed in the contract which must be before the fifinal date for payinenf.
If parties have not agreed on the prescribed period, the Scheme will insert such period into the contract. If the matter is referred to an adjudicator who decides in favour of the payee, the amount must be paid within 7 days of his decision (or by the final date for payment if it happens to be later).

44

2: HOUSING GRANTS, CONS1 RUCTION A N D RLGENLIZAI ACT 1996 ION

The 5 day notice referred to earlier may also be used as a notice of intention to withhold payment.

POINTS TO NOTE Whatever the contract may say about set-off, withholding of money is not permitted unless there has been an

"efective notice". It should be noted that a payer can issue more than one "efective notice"
during the "prescribed period" before the final date of payment - this is not forbidden by the Act.

It is sensible for the payee to seek, where possible, the payer's agreement to a deadline for service of an "eflective notice" at the earliest possible date before the date for final payment.

2: HOUSING GRANTS, CONSI'I<U~I'ION RI:C;I:NI:KATION ANI) Acr .I 996

45

I
0

WOGWT OF SUSPENSOON I O NON-PAYMENT FW The Act provides a right to a payee to suspend performance of his contractual obligations where there has been nonpayment. The right is automatic - it does not have to be provided for in the contract. When the outstanding payment is made, the right of suspension ceases immediately. The following conditions must be satisfied before the right can be exercised: a sum of money remains due to be paid - payment has not been made in full by the "jiizal date for yaynieizt" - an "effective notice" to withhold payment has not been given - at least 7 days' notice of intention to suspend performance must be given stating the ground(s) for the suspension. The period of the suspension is ignored when calculating the time taken to complete the contract; in other words there is a statutory extension of time which is equal to the length of the suspension.
-

Section I 1 2

46

2: HOUSING GRANTS, CONSTRUCTION

AND REGENERATION
I I

ACT1996
__

--

--

POINTS TO NOTE It is not possible, by agreement, to waive or exclude the exercise of the statutory right but some contracts may do this by subtle means such as increasing the period of notice well beyond the 7 days - this could amount to contracting out of the Act and, therefore, would be ineffective. The payee is free to exercise any other right which he has for non-payment such as exercising a contractual right of determination or going to adjudication or to the court. Following the issue of a notice of suspension, (see Annex I) the payee will need to consider the removal and/or protection of plant, equipment and materials on site and ensure that responsibility for protection of his works (during any period of suspension) rests with the payer. It is preferable to have a contractual undertaking that the payer provides appropriate protection of the contract works and any plant, etc., on site during a period of suspension. The payee will be expected to remobilise his resources immediately on receiving payment in full; the

2: HOUSING i A N l S , Gl

CONSTRUC7ION AND

RICI:NI~RAI ION

ACl

1996

47

statutory extension of time does not cover the re-mobilisation period. There is no provision for the recovery of the loss and/or expense for the period of suspension unless such is expressly included in the contract. The payer may reserve the right to suspend further performance by you where he suspends under a contract upstream; check that in such event, you have an entitlement to an extension of time and to loss and/or expense.

HEALTH WARNING! Do not suspend unless you are sure that amounts are due and payable; it is sensible to seek advice before taking this drastic step.

48

2: HOUSING GRANTS,

CONSTRUCTION AND

REGENERATION 1996 ACT

i i

Section I I 3

The traditional pay-when-paid arrangement by which a payee is only paid when the payer has received the relevant monies is "ineffective". Such arrangements cease to be "ineffective" if the source of the funds - such as the employer - has become insolvent eg, it has gone into liquidation, administrative receivership or administration (this also applies where there is a pay when paid clause in a sub-sub-contract and the main contractor has gone into insolvency). Both payer and payee may agree fall back payment provisions to operate when there is a pay-when-paid arrangement which is "ineffective" under the Act. If there are no such provisions, the Scheme payment provisions will apply.

POINTS TO NOTE
The Act does not apply to all arrangements which are, arguably, "paywhen-paid" eg, where the main contractor is only required to make payment once he has received a certificate under the main contract or when a certain stage of work under the main contract has been completed. Whatever arrangement that may be put in place to avoid this part of the Act (eg, payment only on receipt of certificates) it must be an "adequate mechanism" for determining what payment becomes due and when. Vigilance should be exercised over any methods deployed to reduce the impact of the Act such as prolonging the payment periods. A "pay-when-paid" arrangement remains "ineffective" even though it might have been accepted at the outset. A full checklist of the Act's requirements in relation to payment and adjudication is at Annex IV.

50

2: HOUSING GRANTS,
-

CONSTRUCTION AND

REGENERATION 1996 ACT

Sections

1 1 5 & 116

The parties are free to agree the manner of service of any notices or documents required by the Act (eg notice of suspension). In the absence of agreement, a notice or document may be served by any "efsec-

tive means".
0

Where a notice or document is pre-paid and sent by post, it is effectively served if addressed to: - the other side's last known principal residence or principal business address 0r, - to the registered or principal office where the other party is a corporate body. Where an act has to be done within a specified period after or from a specified date, the period begins immediately after that date Where such period includes Christmas Day, Good Friday or a bank holiday, these days are excluded.

51

52

3: SCI-IEME CONSTRUCTION FOR CONTRACTS

-"

-___

WHEN DOES TWE SCHEME APPLY?

The Scheme for Construction Contracts is contained in The Scheme for Construction Contracts (England and Wales) Regulations 1998. Similiar Regulations exist for Scotland and Northern Ireland. The Scheme is in two parts: Adjudication and Payment. Part 1 of the Scheme will apply where the contract does not enable a party to refer disputes to adjudication or, where there is such a right, the contract does not either contain or adequately deal with the following matters:
- all the matters in Section 108(2) - these

are listed at pages 31 and 32. - the requirement that the adjudicator's decision is binding until the dispute is finally resolved by agreement, legal proceedings or arbitration. - the requirement that the adjudicator is to have immunity from any action by the parties against him (or his employees or agents) unless he has discharged his functions in "bad faith". Part I1 of the Scheme will apply if and to the extent that:
- the contract does not provide for interim

53

payments; there is no adequate iiiechaizisiii for ascertaining what payments become due and when; there is no provision for a final date for p a y m i z t in respect of any due sum; the contract does not prescribe a period before the yizal date for puyii~eizt in which an effective notice of withholding monies should be given; the contract has a pay-when-paid provision and the parties have not specified alternative provisions which accord with the Act. POINTS TO NOTE The whole of the Schemes provisions on adjudication apply in the event that the contractual provisions are either non-existent or deficient. The Scheme does not just fill in the gaps. On the other hand, the Schemes payment provisions only fill in the gaps. However, they apply in their entirety where the contractual payment provisions do not comply at all with the Act or where there is a pay when paid arrangement (which is ineflective under the Act) and there is no provision in the contract to operate in that event.

54

3: SCHEME CONSTKUCTION FOR CONTRACTS

_ I

-_

The Scheme's provisions are superimposed on a non-compliant contkact. However, it is up to the payee argue in negotiations (or before an adjudicator) that the Scheme applies.

If the other party disputes whether the Scheme applies, the matter can be referred for decision by an adjudicator.

I
~

APPOONUMENT AND POWERS OF %WE ADjUDIICAUOR

The Scheme adjudicator can be the adjudicator named in the contract (or any named substitute adjudicator) or, if no named adjudicator, a person nominated by a body named in the contract. If there is no named adjudicator or named body in the contract, the adjudicator can be selected by an adjudicator nominating body which may be chosen by the referring party from a list kept by the Department of Environment, Transport and the Regions. The Scheme requires bodies named in the contract or adjudicator nominating bodies to inform the referring party of the name of an adjudicator within 5 days of receiving a request to do so. In deciding disputes the adjudicator is made master in his own house so that within wide limits, he can decide the appropriate procedure for the dispute subject to the express provisions of the Scheme. As under the Act, the Scheme adjudicator can deal with all matters arising under the contract but, if a decision or certificate is expressed in the contract to be ' l f i i z d a i d conclusive", the adjudicator cannot vary or amend it. Otherwise, he can open u p review and revise any decision or certificate given under the contract.

56

3: SCHEME

FOR CONSTRUCTION CONTRACrS

i l
I

POINTS TO NOTE The Scheme adjudicator must be an individual, not a firm or employee of one of the parties but beware of attempts to impose as adjudicator a person having a connection with the other party.

Beware of clauses in contracts which state the payers decisions on matters such as valuation and set-off are final and conclusive.
When deciding disputes the Scheme adjudicators powers are extensive:
-

he can set timetables and deadlines, require written submissions and hold oral hearings. he can find out the facts by, for example, making site visits, visiting your offices or those of your opponent, carrying out tests and demanding to see documents. he can appoint experts and lawyers to advise him (provided he has notified the parties beforehand). with the consent of the parties involved he may also decide other disputes under the same contract or related disputes under other contracts.

PROCEDURES UJJNDERSCWEME ADjUDOCAUOON

The adjudication process under the Scheme is initiated by a "notice of adjudication" sent to the other party indicating that you intend to refer the dispute to adjudication (see Annex I). The next stage (which should immediately follow the above) is to check that any adjudicator named in the contract is able and willing to act.

If there is no named adjudicator (or a named adjudicator is unwilling/ unable to act), you should formally request the body named in the contract or, if there is no such body, any other adjudicator nominating body to select an adjudicator.
The "notice of adjudication" should be sent to the body named in the contract or, if there is no such body, any other adjudicator nominating body.

If an adjudicator is to be nominated by an adjudicator nominating body, such body must so nominate within 5 days of receiving a request to do so.

A person requested to act as adjudicator (whether named in the contract or named by a body) must indicate his willingness to act as such within 2 days of the request.

58

3: SCHEME FOR

CONSTRUCTION CONTRACTS

You have 7 days from the date of the notice of adjudication to refer the dispute in writing to the adjudicator (the referral notice - see Annex I).
POINTS TO NOTE The notice of adjudication must briefly: - explain nature of complaint; - state where and when dispute arose; - state redress sought; - state names and addresses of the parties. The referral notice must be accompanied by the documents to be relied upon including a full statement of the referhg partys case and the contract (or extJacts therefrom); this documentation must also be sent to the other party. There are other options in the Scheme for selecting an adjudicator in the event that a named person is unable/unwilling to act or a contract body named in the contract or adjudicator nominating body does not appoint within the time limit; an approach can be made to any other adjudicator nominating body to make an appointment. Under the Scheme it is always open to the parties to agree to name an adjudicator at the time of the dispute although such agreement may be difficult to achieve in practice.
I I

The deadline for the adjudicator's decision is 28 days from date of the "referral notice".

If the referring party consents, the adjudicator may extend the time u p to 42 days in total and both parties can agree after the date of referral any extension to the 28 days.
The decision will briefly state the outcome of the dispute unless a party requires written reasons (a copy of the decision must be sent to the parties as soon as possible). Where the decision requires a payment to be made over to one of the parties, the due date and final date for such payment may be stated in the decision (in set-off disputes, payment must be made within 7 days of the decision or the final date for payment whichever is later). The adjudicator may award interest but the rate and whether simple/ compound interest is to apply are matters for the discretion of the adjudicator.

60

3: SCHEME

FOR CONSrRUCTlON CONTRACTS

POINTS TO NOTE The adjudicator may reach a aecision in the absence of the involvement of the other party.

If the other party has objected to the appointment of the person in question as adjudicator, that person's decision still stands.
A party can require written reasons for the decision but, as mentioned earlier, this could be a two-edged sword enabling the other party to attack the decision.

If the adjudicator does not meet the deadline for giving a decision, the parties may start the process again with a new adjudicator.

ENFORCEMENU OF UWE ADjlMDUCAUORS DECOSOON

Unless the adjudicator has directed otherwise, compliance must be immediate upon receipt of the decision.

In his decision, the adjudicator can order a party to comply peremptorily, ie, forthwith; i t may be that the adjudicator can stipulate a sanction to force compliance within a stated time but this has yet to be established.
Proceedings can be brought under Section 42 Arbitration Act 1996 as amended by the Scheme by which a court may order compliance.

POINTS TO NOTE
e

As far as court enforcement is concerned, the Scheme adapts section 42 of the Arbitration Act 1996 which was designed to enable the courts to order compliance with interim directions of an arbitrator. Unfortunately, in this context, the effect of this adaptation is anything but clear. Section 42, even as amended by the Scheme, allows parties to contract out of this mode of enforcement of adjudicators decisions by the courts.

62
~

3: SCHEME CONSTRUCTION FOR CONTRACTS

___
11 1
_ l l _ l

~I

The most effective way of enforcing a money decision given by the Scheme adjudicator is by way of commencing debt recovery proceedings in /the court. I

ENFORCEMENT IN SCTOLAND In this matter of compliance there is a significant difference in the Scheme for Scotland. One of the parties or the adjudicator may register the decision for execution in the Books of Council and Session; the other party must consent (on request) to such registration. This means that, in the event of noncompliance in Scotland, one can simply resort to legal enforcement procedures without having a court hearing beforehand. If, for example, monies are not paid over, a formal demand for payment may be served by Sheriff's Officers. If payment is not made within 14 days of such demand, poinding may take place. This is the process of seizing and selling the goods of the non-payer to realise the monies owing following the adjudicator's decision.

64

3: SCHEME FOR

CONSTRUCTION CONTRACTS

COSUS OF ADjUDDOCAUOOW AND ADjMBOCATORS FEES

0

The Scheme makes no express reference to the recovery of the costs of each partys representation in the adjudication - each party will have to bear his own costs. The adjudicator is entitled to a reasonable amount of fees and expenses which have been reasonably incurred. The adjudicator may apportion liability for payment of his fees and expenses between the parties. The parties are jointly and severally (individually) liable to the adjudicator for payment of fees and expenses.

POINT TO NOTE There is no liability for fees or expenses if the parties have revoked the adjudicators appointment for default or misconduct; this should be dealt with in the terms of the adjudicators appointment. (see Annex 11)

The price for the work to be done under the contract is defined in the Scheme as the "contract price". Under the Scheme, the "corzfrmf pricc" includes: - Value of work conforming to the contract (not including goods and materials), and - Value of goods and materials manufactured on site or brought on to the site; and - Any other amounts/sums specified i n the contract as being payable (eg, loss and / or expense): Where instalment payments are to be made, each instalment will include the total amount of the above items minus sums already due/yaid: in the case of amounts other than for work and materials, the contract must have stipulated for payment at some time prior to the end of the period covered by the instalment i n question if such amounts are to be included. The Scheme appears to refer to other payments - in respect of which there is no time for payment stated in the contract and, therefore, will not form part of a n

I
I

'

66
~

3
_

SCHEME I'OR CONSTRUCTION CON I [<ACTS

--

x I

--

_ I

-_

-- - -

"~

I-

instalment or periodic payment. Such payments become due on the expiry of 7 days following completion of the work to which the payment relates or (whichever is later) the making of a claim by the payee.

POINTS TO NOTE "Work" includes all that which comes within the definition of "construqtion contracts" in the Act. "Value" is ascertained by applying the contract rates or, if there are no such rates, the value is the cost of the work and any overheads and profit included in the contract price. The Scheme does not allow for the deduction of retentions.

..

With regard to timing, the Scheme makes a distinction between "relevant construction contracts" and other construction contracts (the latter being where the contract states or the parties have estimated that the duration of the work is "to be less than 45 days"). In the case of the former, the payee is entitled to be paid the "contruct price" in instalments. Instalment payments under "relevant construction contracts" are to be made in respect of a "relevant period". In the absence of any period stated in the contract, the "relevant period" is a period of 28 days. Payment is due on the expiry of 7 days from the end of the "relevant perio d or on the making of a claim for payment (whichever is later). The final payment under "relevant construction contracts" (the difference - if any - between the contract price and the total of the instalment payments) is due on the expiry of 30 days after completion of the work or (whichever is later) on the making of a claim for payment.

68

3: SCHEME CONSI'RUCTION FOIz

CONTRACTS

By contrast, payment of the contract price under all other construction contacts where there is no entitlement to interim payments - is due on the expiry of 30 days following completion of the work or (whichever is later) on the making of a claim for payment.
Any other payment under any contract becomes due on the expiry of 7 days following completion of the work to which the payment relates or (whichever is later) on the issue of an application from the payee. The last or "final date" for any payment under any contract is 17 days from the due date.

POINTS TO NOTE As has already been mentioned, there is little to be gained in accepting a provision in a contract which states that the work will be less than 45 days.
The timing provisions "kick-in" to the extent that the contract is silent, or lacks clarity on these matters. Instalment payments are calculated from commencement of the contract; this may be earlier than commencement of work on site.

ONIFORMATDON ABOUT PAYMENT ENUOTLIEMENT

The Scheme requires that within 5 days of each due date for payment, the payer must notify the payee of: the amount (if any) to be paid; and - that to which the payment relates; and - the basis upon which the amount was calculated. The statutory notice of intention to with1 hold payment (see section 1 1 in the Act) must be given no later than 7 days before the "final date" for payment as stated in the contract or if not so stated, 7 days before the expiry of 17 days from the due date.
-

POINTS TO NOTE
Even if (according to the payer) no sum is due - because of, for example, poor workmanship or set-off for delay - the amount that otherwise would have been due must still be notified to the payee. It would be sensible for the notice to list those items set out on page [to be inserted in printing] and the amounts attributable to each item.

70

3: SCHEME CONSTRUCTION FOR CONTRACTS

-~

~-

-~

~~~

I~

Neither the Act or the Scheme provides a sanction for failure to issue a 5-day notice; however, the payer may find himself in difficulties in the event of a dispute where he has not issued 1 the notice.
I

71

PART 4 GOVERNMENT PROCUREME

72

4: PROCUREMENT A N D CONTRACTUAL GUIDANCE GOVERNMENT CONTRACTS FOR

-~

As a best practice client the Government subscribes to the Codes of Practice published by the Construction Industry Board (see Part 1 of this Handbook). Where there is a substantial design input from specialists (particularly on M&E work) Government departments should seek to engage the specialist under a separate design agreement. The Government will use standard suites of contractual documents applying to all participants in the project. Performance bonds will not be required except in the rarest of circumstances. The use of retention bonds is to be encouraged in preference to cash retentions. On all Government contracts the parties are entitled to be paid within 30 days of the date when the payment becomes due.

POINTS TO NOTE The above applies to central Government contracts - not to the whole of the public sector; Government agencies and NHS Trusts are included.

73

However, the rest of the public sector - mainly local authorities - are required to adhere to the CIB Codes of Practice and, of course, to the contracts legislation. Government departments still have the right to determine their own procurement strategies. Government departments will generally use the GC/Works/l (1998 Edition) contract documentation. Some departments and agencies such as the Ministry of Defence and Highways Agency have their own contract documentation. For each project, Government departments will have a Project Sponsor who will own the project and be responsible to his / her departmen tal bosses including Ministers for the success or otherwise of the project. The name of the Project Sponsor should be obtained and any failure on the part of the Department to act as a best practice client should, in the first instance, be brought to the notice of the Project Sponsor.
..

75

ANNEX I
SPECIMEN LETTERS
AND

NOTICES

The following letters and notices are required by the Act but will need to be adapted as appropriate
Previous page is blank

[Insert name and address of other party]'. Dear NOTICE OF INTENTION TO REFER A DISPUTE TO ADJUDICATION We refer to our sub-contract dated [insert date] for the carrying out of [insert the nature of the works] at [location of works]. On [insert date] your company issued a notice informing us that it intended to deduct [insert amount] by way of set-off which deduction would be made from interim payment no: [insert number] that was due on [insert date]. At the site meeting on [insert date] it was alleged that our operatives had caused damage to control panels installed by another contractor. Your company also complained that this resulted in substantial disruption to the overall programme for completion of the project works. At the meeting it will be recalled that we said that these allegations were wholly unfounded. Therefore, we do not accept that you have any grounds for set-off and, in any event, the notice

"

~ . .

__ ..

given by your company is not an effective notice under section 111(1) of the Housing Grants, Construction and Regeneration Act 1996, in that it failed to specify the grounds for withholding payment and the amounts attributable to each ground. Furthermore, the notice was not given within the prescribed period in the sub-contract. Since we have not been able to resolve this matter, we have no alternative but to give your company written notice3 under clause [insert clause number] of the sub-contract of our intention to refer the dispute to the adjudicator [named in the sub-contract] [to be selected by the body named in the subcontract] [to be selected by an adjudicator nominating body] (delete whichever is inappropriate)" within 7 days of this notice as required by' clause [insert clause number] of the sub-contract. We shall be asking the adjudicator to decide that the amount withheld - [insert amount] - is paid over to us immediately. All notices and correspondence in connection with this dispute should be directed to the above address. Would you kindly confirm your appropriate address for notices and correspondence in connection with this dispute. Yours faithfully (Insert name and position in company)

78
" _

ANNEX SPECIMEN 1. LETTERS N D NOTICES A

-__c
1 1 1

N U 1'ES

1 Your sub-contract may indicate where notices are to be sent; otherwise send to registered office (if other party is a corporate body) with a copy to /the main business address and / or nearest regional office. If the other party is not a corporate body, send notice to main business address. 2 This notice is sufficient where your contractual adjudication procedure only requires a brief statement of the nature of the dispute. You must refer to the adjudication procedure governing your sub-contract to ensure that this letter is sufficient;such procedure may require a detailed account of the dispute. 3 If the Scheme applies (because the s?bcontract does not comply with the Act's adjudication provisions) thkre should be substituted between the words "written notice" and "of our intention" in the third and fouhh lines in the fifth paragraph, [he following: "in accordance with paragraph 1 in 1 part 1 of the Schedule to the Scheme II for Construction Contracts (England and Wales) Regulations
I 1

' 1

79

1998 [If the works are in England & Wales] 4 When issuing this notice, you are advised to:

(i) check immediately that any individual adjudicator named in the contract is available to act; (ii) if he/she is not available or there is no named adjudicator you should apply immediately for the appointment of an adjudicator by the body named in the sub-contract or, if there is no such body, by an adjudicator nominating body. (iii) ensure that your case is fully prepared before referral of any dispute to adjudication. 5 If the Scheme applies there should be inserted after the words required by in the fifth paragraph, the following: paragraph 7 in Part 1 o the f Schedule to The Scheme for Construction Contracts (England and Wales) Regulations 1998.

80
__

ANNEX SPECIMEN I: LLTTERS NOTICES AND

-_

To: [insert name and address of adjudicator]

Dear Sir / Madam REFERRAL TO ADJUDICATION OF A DISPUTE BETWEEN [name of your firm] and [name of other party]. By this letter I wish formally to refer to you a dispute between ourselves and [insert name of other party]. This referral is submitted to you in accordance with clause [insert number] of a subcontract between ourselves and the above company. A written notice of intention to refer this dispute to adjudication was sent to the above party on [insert date].' Attached to this letter2are the following documents: Notice of intention to refer the dispute to adjudication (this identifies the issues in dispute); A detailed statement of our case; The contract documents ; All correspondence between ourselves and the other party in relation to the dispute; Minutes of site meeting dated [insert date];

Our site diaries or the period covering the dispute; Photographs of the area of the site where [name of the other party] alleges that we have caused damage to work carried out by other contractors. I am forwarding a copy of this letter to [name of the other party] together with copies of the attachments.

Yours faithfully

(Insert name and position in company) cc: [insert name of other party]

82

ANNEX SPECIMEN I: LETTERS N D NOTICES A

NOTES 1. This letter assumes that the sub-contract complies with section 108 04 the Housing Grants etc. Act 1996 requiring the contract to provide for the referral of disputes to an adjudicator. Alternatively, this letter can be used where the Scheme applies. If the Scheme applies delete all the words in the second sentence of the first paragraph after and including "clahse" and insert the following: I "paragraph 7 in Part 1 of the Schedule to The Scheme for Construction Contracts (England and Wales) Regulations 1998". 2. Before sending this letter to the adjudicator, you should carry out a check of your contractual provisions on adjudication to ensure that the letter conforms to all the procedural requirements.

ANNEX SIWIMEN 1: LI:TIIXS ANI] Nonces __

83

$PECOMEN NOUOCE OF $W$PEN$OON OF PERFORMANCE FOR NON-PAYMENU

TO: (insert nam and address of main contractor)'

NOTICE OF SUSPENSION OF PERFORMANCE OF OUR SUB-CONTRACT UNDER SECTION 112(2) OF THE HOUSING GRANTS, CONSTRUCTION AND REGENERATION ACT 1996 Payment in respect of interim valuation no. [insert number] was due on [insert date] with the final date for payment being [insert date] . Payment has not been made by the final date for payment. In the circumstances, we intend to exercise our right under Section 112(1) of the Housing Grants, Construction and Regeneration Act 1996 to suspend performance of our obligations under our sub-contract entered into on [insert date] for the carrying out of [insert nature of works] at [insert address of site]. By this letter, we now give 7 days' notice of our intention to suspend performance of our sub-contract because of your company's failure to discharge the above payment by the final date for payment unless, in the meantime, such payment is made in full. The 7 days' will commence from [insert date by which the main contractor is likely to receive this

84

ANNEX SPECIMEN LETTERSA N D NOTICLS I:

_ _ I _

l l l _

- _

notice if posted 1st class and to the correct address; receipt should be assumed to have taken place on the next working day but one after the day of posting]. We should remind you that, in the event of suspending performance, the period of any suspension is disregarded in the time that is taken by us to complete the sub-contract works [section 112(4)14. Yours faithfully (Name and position in company)

NOTES Your sub-contract may indicate where and by what means notices are to be sent. If so, the provisions in the subcontract are to be observed. Otherwise send to registered office (if other party is a limited company) with a copy to main business address and / or nearest regional office. If other party is not a limited company, send notice to main business address. The 7 days must exclude Christmas Day, Good Friday and bank holidays. Under the Interpretation Act 1978 service by post is effected at the time when "the letter would be delivered in the ordinary course of post" provided it is pre-paid and properly addressed. Although letters posted 1st class are normally expected to arrive on the following working day, it would be prudent to allow an extra day or longer if weekends or holidays are involved. Alternatively the notice of suspension can be delivered by hand or sent by fax to the registered office and principal place of business. Delivery by hand has the advantage that the date and

86

ANNEX SPECIMEN LETTERS N D NOTICES I: A

_I___

--

--

time of delivery can be established beyond doubt. If sent by fax, you should retain any transmission receipt and also confirm with the other side that it has been received; a hard copy should be sent in the post in any event. 4 You may wish to add another paragraph informing the other party that you will be removing plant, equipment and materials already on site and / or requesting him to provide adequate protection for your works and nay plant etc left on site. 1

87

88
1 1 1

ANNEX SUGGESTED ADJUDICATION 11:

___
I I

CLAUSE A N D ADJUDICATOR AGREEMENT

I

1. A party shall be entitled to refer any dispute or difference arising under this subcontract to adjudication at any time
2. Subject to clauses 3 and 4 below, the adjudication shall be conducted in accordance with the provisions of Part I of the Schedule to The Scheme for Construction Contracts (England and Wales) Regulations 199tL2

3. Paragraph 20(a) in Part I of the Schedule shall be deleted and replaced as follows:

(a) open up, revise and review any decision taken or any certificate given by any person referred t o in the contract, 4. Paragraph 24 in Part I of the Schedule shall be deleted and replaced as follows:
24. The decision of the adjudicator

shall be enforceable by the court and, t o the extent that it involves the payment of monies, shall be enforceable as a debt free of set-ofi counterclaim or abatement.3

NOTES 1 This may be adjusted to accommodate the Scottish or Northern Ireland Schemes.
2 There are a number of Act-compliant adjudication procedures available such as:

The Technology and Construction Solicitors Association Rules version 1.2 (1998) (but see warning on pages 35 and 36) The Construction Industry Council Model Adjudication Procedure The Centre for Dispute Resolution Rules for Adjudication These can be incorporated in one's contract by inserting the following suggested clause: "A party shall be entitled to refer any dispute or difference arising under ths Contract / Sub-Contract to adjudication at any time. The adjudication shall be conducted in accordance with [The Centre for Dispute Resolution Rules for Adjudication] and any amendment thereto in force at the date of this [Contract/ Sub-Contract]" 3. Enforcement of adjudicators' decisions should be expressly excluded from any arbitration agreement.

90

ANNEX SUGGESTED 11: ADJUDICATION CLAUSEN D ADJUDICATOR A AGREEMENT

SUGGESTED ADjUDOCAUOW AGREEMENU

AN AGREEMENT Between: Fred Bloggs

- and

Local Plumbers Limited - and National Contractors Limited Adjudicator The Referring Party

WHEREAS First National Contractors Limited (NC) entered into a sub-contract dated [ ] with Local Plumbers Limited (LP) for the installation of plumbing works at Bash Street School, Bashville. Second A dispute or difference has arisen between NC and LP under the sub-contract as set out in a Notice served by [insert either NL or LP] on [insert date] which has been referred to adjudication in accordance with the sub-contract ("the Dispute"). Third Fred Bloggs has been appointed as adjudicator (referred to hereafter as "the adjudicator") under the sub-contract.

ANNLY 11

SUCGL5TtD ADJUIIICATION CI-AUSL A N D Al>]UI>lCAlOl<ACRLLMLNT

I _

_~

__

--

NOW IT IS HEREBY AGREED AS FOLLOWS:

1. The adjudicator shall conduct the adjudication in accordance with the procedure set out and/or incorporated by reference into the sub-contract which is attached to this Agreement.
2. The adjudicator undertakes to act impartially in conducting the adjudication.

3. Neither NC nor LP shall join the adjudicator as a party to or call him as a witness in any subsequent litigation or arbitration proceedings which touch or concern the Dispute.
4. The adjudicator is not and shall not be liable for anything done or omitted in the discharge or purported discharge of his functions a s adjudicator unless the act or omission is in bad faith. Any employee or agent of the adjudicator is and shall be similarly protected from liability.

5. The adjudicator's fees and expenses shall be calculated and paid in accordance with the attached schedule.'"2 NC and LP shall be jointly and severally liable to the adjudicator for payment of his fees and expenses. The adjudicator shall determine in his decision what proportion of his fees and expenses shall be borne by NC and LP respectively. The parties shall not be liable to the adjudicator for payment of his fees and expenses where he is in breach of this agreement and / or is guilty of any act or omission constituting misconduct.

92
i l

ANNEX SUGGESTED ADJUDICATION 11: CLAUSE. A N D ADJUDICATOR AGREEMENT

~-

Signed Witness

.....................
.....................

The adjudicator

Signed Witness

.....................
.....................

For and on behalf of NC

Signed Witness

.....................
.....................

For and on behalf of LP

NOTES 1 It is suggested that the adjudicator attach an agreed schedule of his fees and expenses to this agreement. The following matters should be dealt with in the schedule:
0

Whether fees are charged at an hourly rate (including / excluding travelling time) or as a lump sum.

A N N E X Succusrim ADJUIXCATION 11: CLAUSI: AIIJUIIICATOR ANI) ACI;EEMIIN r

93

What will be included in expenses e.g. expert's fees, telephone calls, stationery, postage, photocopying, travel, hotel accommodation. Whether an appointment fee is required. Whether the adjudicator is registered for VAT. When and how fees are to be invoiced and when are they due for payment. Whether interest will be charged on outstanding fees. What is the position with regard to fees in the event of:
-

the adjudicator not being able to commence or continue the adjudication, and - the adjudicator's appointment being terminated prior to a decision (e.g. because the parties settle). 2 Some of these points may be dealt with in the adjudication procedure governing the sub-contract and reference should therefore be made to this before the schedule is completed.

95

ANNEX I11 TABLES PAYME OF

CYCLES UNDE

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96

ANNEX rrABLES OF 111:

P A Y M E N T C Y C L E S UNDER TIHE SCHEME

c
a !
L

-z

0 0

97

c 0

99

ANNEX IV
DOES

You

CONTRACTo w C
TO THE HOUS

TS ETC,

996

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100

ANNEX v D O G YOUR CONTRACT CONFORM TO THE HOUSING 1 GRANTS ACT 1996? ETC
I
~

Is there provision for payments to be made in instalments, periodically or in g stages? (see note 1)
111

Is there an "adequate mechanism" for payments?

Do the payment provisions provide a reliable means for ascertaining amount of
Are the due dates for interim and final payments clearly ascertainable?

0 0i!
f

Are the final dates by which each pay, ment is to be discharged clearly stated?
I

1 I

Is there provision for the issue of a notice within 5 days of each due date for payment indicating the amount to be paid and the basis of the calculation?

ANNEX DOESYOUR CONTI~ACT IV: CONI:OIW 'IU

Ttii:

HOUSING CIIANIS ACI 1996? wc

101

j Is there a period - before the final date

/ j for each payment

- by which any notice

must be

il of withholding / j (see note 2)

___--~____
r - -

given?

0
U

--

-. -

11
"

Is there an absence of provisions making payment dependent upon receipt of payment by the payer from a third party? (see note 3 )
_ x

__

___I"

Is there a right to refer disputes under the contract to an adjudicator?

ji ... . .
' .

0
-

. L'." I "

- _ _ -____ -

-.k?f-

I -

Do the adjudication provisions in the contract:

enable a party to give notice of his intention to refer a dispute to adjudication at any time? aim to have an adjudicator appointed and dispute referred to him within 7 days of the above notice? require adjudicator to reach his decision within 28 days of referral of dispute?
~ ~ _ _ l _

0 0

___
_

l _ _ I_I

--

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0i
continued over
". "

.".""" . "

"

"

. .

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102

ANNEX v DOES YOUR I

CONTRACT CONFORM TO THE

.l l _ _ l l

HOUSING GRANTS ACT1996? ETC

_ _

--

Do the adjudication provisions in the contract:

permit the 28 days to be exceeded if both parties agree or to be extended by the adjudicator by up to 14 days if referring party consents? impose a duty on the adjudicator to act impartially? permit the adjudicator to exercise his own initiative in finding out the facts and law? require that the adjudicator's decision is binding until dispute ultimately resolved by agreement, by the court or (if the contract so provides) by an arbitrator? exempt the adjudicator and those acting on his behalf from liability unless he is acting in bad faith?

0 0

oli9
/*

NOTES 1. There is no requirement for interim payments where it is agreed the duration of the work is or is estimated to be less than 45 days.
2. Right to a notice of withholding is a

statutory right and does not need to be included in the contract.

3. The payer may be able to impose a condition releasing him from liability for payment if a third party source of funds becomes insolvent.
4. The statutory right to suspend the contract for non-payment does not require inclusion in the contract.

. -

Uhe $pecialist Engineering Contractors Group ($ECG) is the representative voice of the: Electrical Contractors Association Electrical Contractors Association of Scotland trading as SELECU Heating and Ventilating Contractors Association Lift & Escalator Ondustry Association Association of Plumbing and Heating Contractors.

SECGs constituent associations represent the interests of companies

involved with the origination, installation and management of systems incorporating new and developing electrical, electronic and thermal technologies.

The $ECGs objectives include: Raising the awareness of the specialist engineering sector about the needs of clients.
Raising the awareness of clients and their advisers about the important use, application and availability of the technologies in the sector which contribute t o an improved living and working environment and the efficient movement of people. Publicising and explaining the scope and coverage of the sector which, for example, includes telecommunications, power and lighting, information technology, data transmission, security, automation and control, heating, refrigeration, air-conditioning, duct work, plumbing, lifts and escalators, service and maintenance, facilities management, commissioning and testing. Encouraging and supporting research in the industry particularly in the areas of safety and the technological, environmental and economic advancement of the sector. Promoting the need for manpower planning, career and personal development and training consistent with the need to maintain a workforce to satisfy the requirements for quality. Encouraging recognition of the need for contractual, financial, inter-company and personal relationships to reflect the importance of the sector and its contribution to the construction process. The promotion of fair trading and equitable practices and a contractual framework to support them.