Last edited 05 Oct 2020

Hybrid construction contract

HybridContract.jpg

Contents

[edit] Introduction

A contract is a promise or set of promises between two or more parties (the promisor and the promisee) which the law will enforce. In the procurement of construction, contracts are frequently standard, modified or bespoke. They can also be hybrid.

Hybrid contracts are agreements that cover those activities defined under the Housing Grants, Construction and Regeneration Act 1996. This includes construction and non-construction activities.

Section 105 of the Act defines construction activities (classified as a broad range of operations) covered with certain industry-specific exclusions. Non-construction activities are also defined in the Act, but they are only covered under a hybrid contract.

[edit] Hybrid contracts and payment

According to a 6 March 2020 London court ruling, the Act no longer requires hybrid contracts to identify specific construction and non-construction activities. The case of C Spencer Ltd (CSL) v M W High Tech Projects UK Limited (MW) exposed a lack of clarity regarding payments to the contractor (MW) and the subcontractor (CSL) during a project to construct a waste to energy power plant.

This ambiguity around construction and non-construction activities was the cause of court decisions in the past. However, the 2020 ruling stated that the phrase “only in so far as it relates to construction operations" was not necessary with regard to payment terms for non-construction activities in hybrid contracts.

This is clarified further by Simmons+Simmons:

"Hybrid construction contracts are those which include both construction operations covered by the Housing Grants, Construction and Regeneration Act 1996 (the Act) and non-construction operations. The Act has been of great assistance to the construction industry by providing clear and certain provisions in respect of payment applications and the dispute resolution procedure, which has in turn improved cash flow. However, the Act is not as comprehensive as some might have hoped. The use of ‘hybrid contracts’, i.e. those which include both construction operations (as defined by s.104 of the Act) and non-construction operations (not covered by the Act), has resulted in uncertainty.

"The dispute between M W High Tech Projects UK Limited (MW) and C Spencer Ltd (CSL) arose out of this uncertainty. In this case, the court found that payment notices for hybrid construction contracts do not need to separately identify the sums owing for ‘construction operations’, together with the basis of the breakdown, in order to be valid."

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