Construction Contracts Act

Purpose of the Act

The Construction Contracts Act 2002 came into force on 1 April 2003. The purpose of the Act is to provide a process for deciding what payments have to be made under a construction contract and when they are due. When you enter into a contract with a builder to build your house, you have to comply with some sections of the Act.

The Act also provides quick and simple procedures to resolve disputes about money due under construction contracts.

What sort of work is covered by the Act?

The definition of construction work in the Act is wide-ranging and covers most of the work which might be done in building, altering or maintaining a house such as:

• The construction, installation, alteration, repair, restoration, maintenance, extension, demolition, removal, or dismantling of any building or other structure.
• Putting in roadways, pipelines, water mains, sewers, electricity, water, gas, or telephone reticulation.
• Work done on any heating, lighting, air conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, security, and communications systems.
• Any cleaning work carried out as part of the construction work.
• Preparation for construction work such as site clearance, earth-moving, excavation, laying foundations; scaffolding.
• Site restoration and landscaping, painting and decorating.

Payment schedules in contracts

The Act says when you enter into a contract with a builder (or other type of contractor), you can negotiate a payment schedule with them to cover:

• The number of payments.
• The amount of each payment.
• The date when each one is due.

You can’t have a clause in your contract that says you won’t pay the builder until you get paid by someone else – this is known as a ‘pay if paid’ clause and it has no legal effect.

If you are building the house for someone else to live in, say as a ‘spec’ house or a rental, this would be a commercial construction contract (which means “a contract for carrying out construction work in which none of the parties is a residential occupier of the premises that are the subject of the contract” in section 5 of the Act).

The default payment provisions in the Act, which apply if you don’t have a payment schedule in your contract with the builder (or contractor), are:

• At the end of each payment period (usually at the end of the month) the contractor can serve you with a payment claim. This must be writing.
• Once you receive this, you can either pay the claimed amount before the due date (20 working days after service of the payment claim) or provide a payment schedule to the contractor.

What happens if you fail to pay?

If you don’t agree with the amount being claimed by the builder/contractor, you can give them a written payment schedule stating the amount you think you should pay. You’ll need to say exactly:

• How you calculated this amount.
• Why it’s different from their claimed amount.
• If you’re withholding some money, why you are doing so.
• If you simply don’t pay and don’t give the builder/contractor a written payment schedule, it becomes a debt that they can recover from you in the Courts, along with legal costs.

If you do provide a written payment schedule, but don’t pay the amount you’ve proposed on the date due, they can recover your proposed amount, along with costs, in Court.

The builder/contractor can only suspend work if this is agreed in the contract, or if it’s a commercial construction contract, i.e. if you have built the house with the intent of selling it or renting it.

If you don’t pay because you are disputing the scheduled amount, you can use the adjudication procedure introduced by the Act.

Adjudication

The Act provides a fast-track adjudication process for disputes. The only disputes that can be referred to adjudication are those which relate to payments under the contract and any disputes you have about the rights and obligations of the parties under the contract.

The adjudicator can make a decision within a very tight timeframe and the decision is binding on both you and the contractor. It is also enforceable as a Court judgment giving access to the normal range of enforcement procedures. The contractor can also ask the adjudicator for a charging order over the building site.

Nothing in the Act, however, prevents both parties from first submitting a dispute to another form of resolution, such as the Courts, arbitration or mediation.

How to start an adjudication

Whoever starts the adjudication process must serve a written notice of adjudication on the other person giving details about the dispute and the names and addresses of both parties for service of the legal documents. If it is the builder starting off the adjudication, (and the building is not a commercial property), the builder’s notice must also:

• Explain to you your rights and obligations in the adjudication process.
• Briefly describe that process.

If the builder’s notice doesn’t do this, the notice will have no legal effect. This additional information for home-owners must be in the form set out in the Schedule 1, Form 2 of the Construction Contracts Regulations 2003 available on the Government Legislation website.

The adjudication process

The steps in the adjudication process are:

• An adjudicator is chosen – either you and the builder/contractor agree on one, or one will be chosen for you.
• Once an adjudicator has been chosen, whoever started the process has five working days to refer the dispute to the adjudicator in the form an adjudication claim (which is also served on the other party), giving the details about the dispute.
• After the adjudication claim has been received by the other party, that other party has five working days to respond to the adjudicator about the adjudication claim. You will also receive a copy of their response.
• You can appoint a lawyer to represent you if you wish.
• The adjudicator can:
  • Require you and the builder/contractor to make written submissions and provide copies of documents.
  • Appoint an expert adviser to report on specific issues (you must be notified first).
  • Call a conference.
  • Inspect any construction work (but only with your consent or, if you’re the landlord, the consent of your tenants; you can’t unreasonably withhold consent).
  • Make a decision and give both parties a copy with the reasons for the decision.
  • Order payment of an amount of money.
  • Order one party to pay the costs of the other party. If you or the builder/contractor doesn’t pay any amount ordered, the other person can take it to Court to recover the amount as a debt.