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Act changes could improve cash flow

Efforts to improve cash flow in the construction industry’s supply chain and resolve payment disputes have been boosted by the publication of draft amendments to the Construction Act.


More than four years after a review of the act was announced, the Department for Business, Enterprise and Regulatory Reform (DBERR) unveiled draft clauses which it said could bring £5.8 million in direct savings through reduced red tape. It predicted potential savings of £1 billion through improved cash flow in the supply chain.


A DBERR spokeswoman said the changes would introduce greater clarity about what has to be paid and when. And when the amount was in dispute, there would be a 28-day dispute resolution regime.


The draft amendments would remove the requirement for construction contracts to be in writing in order for the Construction Act to apply, allowing more contracts to be referred to adjudication than is currently the case.


The draft also introduces a statutory framework for the costs of adjudication. Currently a weaker party may be contractually obliged to pay all costs, regardless of the outcome.


Under the legislation, agreements that interim or stage payments are conclusive would be prohibited and there would be greater certainty and clarity in the statutory payment framework, meaning a payee would have a clear idea of what he is being paid and when.


Other proposed changes include improving the right to suspend performance and limiting the scope of the House of Lords’ decision in the case of Melville Dundas (in receivership) v George Wimpey UK Limited to insolvency situations.


Publication of the draft amendments follows Sir Michael Latham’s review of the Construction Act in 2004 and two consultations, one in 2005 and another last year.