Everything You Need to Know About The Construction Act as a Contractor or Subcontractor

If you work in the construction industry, you’ll no doubt have heard of the Housing Grants, Construction, and Regeneration Act (HGCRA), more commonly known as “the Construction Act.” You might already know a little about it, but in this blog, we’ll help you better understand it and benefit from leveraging it.? ?

Read on to discover our guide on the Construction Act, which includes what the Construction Act is, the key provisions of the Act, how the Construction Act affects you and how to comply with it.? ?

What is The Construction Act??

The Construction Act came into effect in the UK on 1 May 1998 and was revised on 1 October?2011.?

Its primary purpose is to improve payment practices in the construction industry, ensuring that contractors and subcontractors receive timely payments and have access to a fair dispute resolution process through Statutory Adjudication. ? ?

Over 20 years later, it still helps to:??

• Set out clear payment terms and ensures prompt payment – By mandating clear payment terms and procedures, the Act’s Payment Provisions reduce the ambiguity of payment terms and ensure timely payments, which in turn improves cash flow and minimises payment disputes.?

• Provide a dispute resolution mechanism – The Act provides a streamlined adjudication process for resolving disputes. This mechanism facilitates quick and cost-effective resolutions, enabling parties to bypass lengthy and expensive court proceedings. The Act fosters timely decision-making by requiring disputes to be addressed within a defined timeframe, allowing projects to proceed with minimal disruption. Ultimately, this enhances fairness and accountability within the construction industry.? ?

The Act applies to all ‘construction operation’ contracts (as defined by the Act – including construction contracts and consultants’ appointments). If contracts fail to comply with the Construction Act, the Scheme for Construction Contracts applies.?

The Key Provisions: Payment and Adjudication?

The Construction Act establishes essential provisions for payment and adjudication in construction contracts. Understanding these provisions is vital for contractors to safeguard their rights.? ?

Payment Rights Under the Act:?

1. Entitlement to Stage Payments: The Act entitles contractors to receive payments at various stages of a project or monthly, ensuring that cash flow is maintained throughout the construction process, which helps to avoid financial strain.?

1. Adequate Payment Mechanism: It requires a clear framework for payment terms, including Payment Due Dates and Final Dates for Payment.?

1. Certainty on Payment Amounts: The requirement for Payment Notices and Payless Notices ensures that all parties know the payment amounts and the basis for calculations, minimising disputes and fostering accountability.???

1. Non-Conditional Payments: The Act prohibits payment provisions that make payments conditional on obligations under other contracts, ensuring that contractors are paid promptly without unnecessary delays linked to third-party actions.??

1. Right to Suspend Performance: Contractors can suspend work due to non-payment with 7 days’ notice, allowing them to protect their financial interests and claim associated costs for demobilisation and re-mobilisation, amongst other entitlements.? ?

Statutory Adjudication under the Act:?

1. Right to Refer a Dispute: The Act grants parties the right to refer any dispute arising from the contract, whether oral or written, at any time, facilitating prompt resolution and preventing issues from escalating.?

1. Adjudication Costs: The Act prevents any provision that assigns adjudication costs to one party, ensuring fairness by not placing the financial burden of the adjudication process on a single party.?

1. Impartial and Binding Decision: It ensures that an adjudicator provides an unbiased and binding decision on disputes within 28 days (or a longer period if mutually agreed), promoting quick conflict resolution and allowing projects to proceed without significant delays.?

? How Does the Construction Act Affect You???

The Construction Act impacts all parties in a construction contract.? ?

The Act protects the financial interests of contractors and subcontractors by addressing the issues of late or non-payment that often put them in precarious financial situations. With the provisions outlined in the Act, contractors and subcontractors can expect timely payments and have access to a structured dispute resolution mechanism if payments are not forthcoming.? ?

While the Construction Act might seem to benefit contractors and subcontractors exclusively, it also affects and benefits clients and employers. Transparency and predictability in payment practices lead to smoother project execution.? ?

The Construction Act encourages a more collaborative and trusting relationship between the two parties, helping to enhance overall project efficiency and reduce disputes and delays.?

How to Comply with the Construction Act??

Compliance with the Construction Act is crucial as it promotes fair and timely payments within the industry. ? ?

To comply with the Act, you need to ensure you understand and abide by the legislation and framework set out by the HGRA. This means abiding by the rights detailed above and actioning payments and/or adjudication within the dates and times outlined in the Construction Act.? ?

Failure to comply with the Construction Act can have significant consequences on cash flow, work progress, and prospects of successful dispute resolution and can result in costly fines.?

Use the Construction Act to Ensure Prompt and Fair Payments?

As you can see, the Construction Act provides a robust framework for managing payments in construction contracts. As a contractor or subcontractor, you must comply with the Act to ensure you receive fair and prompt payment for your work.? ?

Do you want assistance understanding your rights according to the Construction Act? ? ?

Or perhaps you’ve followed the legal framework to a tee but haven’t received appropriate payment and need adjudication support? At Nexus Consult, our experienced team of Expert Quantity Surveyors and Dispute Management professionals can help. Contact us now.?