The scheme for construction contracts, set to cut the number and length of disputes in a bid to lower costs and improve profits within the industry, came into force earlier this month.
However, the scheme is only part of the answer. All parties involved in building projects need to be proactive, agreeing terms and prices up front and ensuring their systems can manage the project and risk effectively.
The scheme, provided for in the Construction Act, sets out adjudication procedures, payment provisions and guidelines on fair contracts. However, not all contracts are covered and some only in part.
An order excludes Private Finance Initiative contracts, development agreements and certain agreements under statute from the scheme. PFI concession agreements are also excluded, although the construction contract or operation and maintenance agreement entered into by the PFI company is not. Parties will need to agree how to achieve back-to-back contracts.
Many construction operations are covered by contracts to which the Act and scheme do not apply. A contract for civil engineering work and plant and machinery installation for waste water treatment might be covered in part. Parties could find different rules applying to the same contract. It is essential to agree from the outset whether the Act and scheme should apply to the whole project.
Main contracts entered into before May 1 could be covered by different provisions from those covering sub-contracts entered into now that the scheme is in force. Anyone proposing to enter into back-to-back contracts should check whether the provisions of the scheme and Act are included in order to minimise the need for adjudication on contractual disputes further down the line.
The adjudication procedures aim to speed up resolution of disputes. They may even reduce the number of disputes by sorting out minor disagreements before they develop into major disputes. A proactive approach from the adjudicator will be crucial in cutting time and costs, as will both parties' willingness to accept the adjudicator's decision.
The risk of disagreement with adjudication decisions can be reduced by choosing an adjudicator in advance. Parties can select a panel of adjudicators to deal with areas of dispute - valuation, architectural or contractual - in order to speed up resolution.
Failure to meet deadlines and pay promptly can often lead to disputes. Project management and billing systems will therefore play a key role in ensuring clients, contractors, sub-contractors and consultants operate within the terms of the Act and the scheme. Everyone in a construction project must ensure their systems reflect the importance of notices, trigger dates and prompt payment.
Clients too need to have systems which manage the process competently. And a designer who suspends his services due to non-payment could have a serious impact on the project's ability to progress from the drawing board to construction.
Everyone involved in construction needs to be clear about all aspects of the project prior to it starting. The client's requirements need to be fully understood and a fair price set, based on agreement of all the services to be provided and the terms and conditions under which the work is being completed.
Fair risk allocation is also essential. Defined project specifications should help achieve a robust price.
The ultimate aim of the scheme is to cut costs and maximise profitability within the construction industry. Those who can identify, understand and manage all risks, technical and financial as well as contractual, will be best placed to achieve success.
Kevin Taylor specialises in construction law and PFI with Shepherd & Wedderburn.
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