Construction Contracts Bill

This Bill is intended to facilitate prompt and regular payments within construction industry.

Typically, construction industry contacts provide for work to be paid after the work has been carried out.  Payments are usually made by instalments as the work progresses, but they are very seldom made in advance.

This means that a developer, principal, or head-contractor with cash-flow problems may deliberately delay payment for work done and, in effect, use those further down the contractual chain (for example, subcontractors) to partly finance the construction project.  It also means that, if a developer or principal becomes insolvent, head-contractors and subcontractors may not be paid at all for work that they have already carried out.

Subcontractors are in a particularly vulnerable position.  For subcontractors it is not commercially feasible for them to impose "pay when paid" provisions in their own contracts with their own employees and suppliers.

Furthermore, any right that an unpaid subcontractor might have to suspend work is often excluded by the terms of the construction contract.  Thus, subcontractors are effectively unable to suspend work, even if they have not been paid.

The objective of this Bill is to:-

• facilitate regular payments between the parties to a construction contract;
• provide for the resolution of disputes arising under a construction contract;
• provide remedies for the recover of payments under a construction contract.

The Bill achieves this by:-

• ivalidating "pay when paid" and "pay if paid" clauses;
• setting out default provisions that will require (except in the case of home owners) periodic payments to be made;
• providing that payment may not be withheld unless a notice has been given to the payee;
• etablishing a quick and inexpensive adjudication process for resolving disputes;
• allowing a party to a construction contract to suspend work if that party has not been paid without good reason;
• enabling a party to a construction contract who is owed money for carrying out construction work under the contract to register a charge against the construction site.

Subcontractors will need to be alert when reviewing subcontract documents after this Act becomes law, to identify legal techniques designed to carefully step around the provisions in the bill.

Clients, whether owners, contractors or subcontractors who require advice on the new bill should contact David Selkirk.