Scheme for Construction Contracts

[edit] Introduction

The Scheme for Construction Contracts (England and Wales) Regulations (also known as The Scheme for Construction Contracts) is a scheme which applies when construction contracts do not comply with the Housing Grants, Construction and Regeneration Act.

The Scheme either supplements the provisions of the contract where it has deficiencies relative to the requirements of the Housing Grants, Construction and Regeneration Act, or replaces the contract where it is non-compliant. This enables construction contracts to remain remain capable of performance, whilst allowing regulatory control over their provisions.

Part 1 of the Scheme makes provision for adjudication where the contract does not comply with the requirement for adjudication in the Housing Grants, Construction and Regeneration Act. Part 2 of the Scheme replaces those provisions in relation to payment that do not comply with the Housing Grants, Construction and Regeneration Act.

[edit] The Housing Grants, Construction and Regeneration Act

The Housing Grants, Construction and Regeneration Act applies to all contracts for 'construction operations' (including construction contracts and consultants' appointments). The Act sets out requirements relating to payment and adjudication:

• The right to be paid in interim, periodic or stage payments.
• The right to be informed of the amount due, or any amounts to be withheld.
• The right to suspend performance for non-payment.
• The right to adjudication.
• Disallowing pay when paid clauses.

Where the contract does not comply with these requirements, then the detailed procedures set out in the schedule of the scheme will apply.

[edit] 2011 amendments to the Housing Grants, Construction and Regeneration Act

The Housing Grants, Construction and Regeneration Act was amended in October 2011 to close loop holes within its provisions and the scheme was amended so that its detailed procedures reflect these amendments.

The act now applies to construction contracts including those that are not in writing (adjudication clauses must still be in writing).

It is no longer be allowable to define within a contract who should bear the cost of adjudication, and adjudicators have the right to correct errors in contracts within 5 days of delivering a decisions.

Specific changes have been made regarding procedures for making payments:

• The dates for payments must be set out in the contract.
• The client (or specified person) must issue a payment notice within five days of the date for payment, even if no amount is due. Alternatively, if the contract allows, the contractor may make an application for payment, which is treated as if it is the payment notice.
• The client (or specified person) must issue a pay less notice (previously a withholding notice) if they intend to pay less than the amount set out in the payment notice, setting out the basis for its calculation.
• The notified sum is payable by the final date for payment.
• If the client (or specified person) fails to issue a payment notice, the contractor may issue a default payment notice. The final date for payment is extended by the period between when the client should have issued a payment notice and when the contractor issued the default payment notice. If the client does not issue a pay less notice, they must pay the amount in the default payment notice.
• Pay when certified clauses are no longer allowed, and the release of retention cannot be prevented by conditions within another contract. So for example work contractors on a management contract project must have half of their retention released when their part of the works reach practical completion, not when the project as a whole reaches practical completion. This also applies to trade contracts on construction management contracts.
• There are also changes to the right to suspend work for non-payment, or to suspend part of the works, and to claim costs and expenses incurred and extension of time resulting from the suspension.

[edit] Related articles on Designing Buildings

• Adjudication.
• Alternative dispute resolution.
• Arbitration.
• Arbitration Act.
• Causes of construction disputes.
• Construction operations.
• Construction supply chain payment charter.
• Due date.
• Egan report.
• Fair payment practices.
• Housing Grants, Construction and Regeneration Act.
• Hybrid construction contract.
• Latham Report.
• Local Democracy Economic Development Act 2009.
• Payment notice.
• Remedies for late payment.
• The Late Payment of Commercial Debts Regulations 2013.