Page 1 Page 2 Page 3 Page 4 Page 5 Page 6 Page 7 Page 8 Page 9 Page 10 Page 11 Page 12 Page 13 Page 14 Page 15 Page 16 Page 17 Page 18 Page 19 Page 20 Page 21 Page 22 Page 23 Page 24 Page 25 Page 26 Page 27 Page 28 Page 29 Page 30 Page 31LocalGovernmentLawyer Dispute Resolution 2016 21 Since 2013, the construction industry has been steadily climbing out of the recession, with employment in the sector reaching 2.11 million in the middle of 2015 after growth of 9.5% to £103 billion for the year 2014. Despite the severe cuts in public spending over the last few years, expenditure on construction projects by the public sector has remained comparatively stable overall. Public sector spending on construction accounts for just over a quarter of construction output (26% in Q2 2015), comprising £1.4 billion on housing; £1.8 billion on infrastructure; and £2.6 billion on ‘other’. Growth in infrastructure spending has risen from just £1 billion in 2012¹. Since the recession, there have been two other interesting trends in the construction industry. First, the number of construction dispute adjudications has leaped by almost one third from 1,093 in 2011/12 to 1,439 in 2014/15; secondly, many of these have related to disputes about how the payment provisions now operate following their ‘updating’ pursuant to the Local Democracy, Economic, Development and Construction Act which came into force in 2011. Most worryingly for employer clients, there has been a real rise in ‘smash and grab’ adjudications. It is no surprise that payments and timing are the most prevalent reasons for a construction dispute heading to adjudication, accounting for three quarters of referrals, as detailed in a report by Construction Dispute Resolution for the Adjudication Society, published in April 2016²: Payment rules A word of warning, as what follows can appear quite complicated! However, there is a very simple message to take away: if you are an employer in a construction contract, make sure that you issue a payment notice or a pay-less notice, no matter what the circumstances! So, what does the law say? Under the updated Construction Act, every construction contract must make provision for interim payments if the duration of the contract is to be more than 45 days; and for every payment, there should be a mechanism for determining what sum becomes due; a mechanism for determining the due date; and a mechanism for determining the final date for payment. The start of the payment cycle is triggered by the payee (often the contractor) submitting an application for payment which is submitted before the due date for payment (this being the date on which the sum becomes due, rather than payable). Not later than 5 days after the due date, the payer (often the client/employer or their specified person e.g. architect, employer’s agent or engineer) will issue a payment notice to the payee. The payment notice will detail the sum the payer considers to be due and the basis on which that sum is calculated. However, if a payer submits an incorrect payment notice or one that is out of time, the payee can submit its own payment notice (payment notice in default), stating the sum the payee considers to be due and the basis on which that sum is calculated. This is a significant change introduced by the new Construction Act. If the payee has already submitted an application for payment, then this may be considered as the payee’s payment notice in default. The payee must submit the payment notice in default before the final date for payment. Adjudication: Beware ambush or smash and grab! Justin Mendelle highlights some of the pitfalls for local authorities engaging in public sector construction contract adjudication. Reason / subject Payment 29.30% Withholding / pay less 19.70% Extension of time/ loss and expense 9.90% Value of work 8.20% Final account 6.90%