Last edited 10 Jul 2015

Local Democracy Economic Development Act 2009

Contents

[edit] Introduction

The Local Democracy Economic Development Act 2009 was introduced in 2011 and amended the Housing Grants Construction and Regeneration Act 1996 (the Construction Act). The act changed the way construction contracts are entered into and in particular, introduced an amended regime for payment and adjudication.

[edit] Key changes to adjudication

The act removed the requirement for contracts to be in writing and therefore lawful contracts include those that are partly in writing or wholly verbally. This enables parties to go to adjudication even if they have not had their contract formalised in writing. If adjudication does take place, this must still be in writing and the referring party is no longer always liable for the adjudicator’s costs.

Section 108(3A) introduced a statutory slip rule to enable the adjudicator to correct a clerical or typographical error. This means that construction contracts will have to contain a provision enabling the adjudicator to correct such errors arising by accident or omission.

[edit] Key changes to payment

[edit] Due date

Any provision in a construction contract which provides that the due date for payment commences or depends on the giving of a payment notice by the payer is ineffective.

[edit] Pay-when-certified clause

The act does not allow any payment mechanism in the main contract to be linked to the performance of obligations under a subcontract. The “pay when certified” clause cannot be used to prevent payment of a subcontractor on the basis that a certificate in the main contract hasn’t yet been issued. This change was intended to create more reliable cash flow for the duration of the construction project. There are two exceptions to this:

[edit] Payment notices

The system regarding payment notices was altered. It remains the case that each construction contract must provide an adequate mechanism for determining a due date and a final date for payment. However, the old regime of payment notices and withholding notices was removed and replaced with section 110A payment notices. To be a valid payment notice, it must:

  • Specify the sums considered to be due on or before the due date for payment.
  • Set out the basis on which that sum is calculated.

The payment notice must be given not later than five days after the payment due date. The construction contract may specify that the payer, another “specified person” (for example the quantity surveyor) or the payee is to issue the payment notice.

A payment notice is still required even if there is nothing due to be paid.

[edit] Default payment notices

Under section 110B, where a payer is required to give a valid payment notice but fails to do so, the payee may serve a default payment notice. This notice must state the sum that the payee considers to be due and the basis on which that sum has been calculated.

If the payer fails to issue the required valid payment notice and the payee has already submitted an application for payment then that payment application is deemed to be the default payment notice and the payee will not be required to issue a separate default payment notice. The amount specified in the payment application will therefore become due.

Where a payment default notice is required by the payee, it should be issued as soon as possible since the final date for payment will be postponed by the number of days that it took the payee to issue the payment default notice (after the failure of the payer to issue the payment notice).

[edit] Pay less notices

Withholding notices have been replaced by a notice “to pay less than the notified sum” (Pay Less Notice). The value specified in a valid payment notice or payment default notice must be paid by the payer on or before the final date for payment, unless the payer (or specified person) issues a valid Pay Less Notice.

The Pay Less Notice must be issued no later than the prescribed period before the final date for payment. The prescribed period can be set out in the construction contract, but if it isn’t, the 7 days as prescribed by the Scheme for Construction Contracts will apply. It is not possible to issue a Pay Less Notice if a payment notice or a default payment notice has not been issued by the payee.

[edit] Changes to suspension of the works

Where the suspending party is entitled to suspend performance under section 112 of the Construction Act, their rights are enhanced and the suspending party is:

  • Entitled to suspend the whole or part of their obligations as a result of the changes.
  • Entitled to the reasonable costs and expenses incurred by the suspension. This could include for example, the costs associated with removing plant and equipment and re-mobilisation costs.
  • Entitled to time "in consequence" of exercising the right to suspend (in addition to the current right to seek an extension of time for the period of suspension). This additional time would include extra time to re-mobilise staff and to return plant and equipment to the site.

[edit] Find out more

[edit] Related articles on Designing Buildings Wiki.

[edit] External references