It has been 14 years since the UK's Housing Grants, Construction and Regeneration Act 1996 was last amended. In this time, though, both the construction market and wider economy have changed significantly.
Brexit, the COVID-19 pandemic and the Russian–Ukrainian conflict have all had considerable and lasting effects on the construction industry, particularly in terms of labour, materials and project financing.
All of these exacerbate the problems underlying the construction industry, including abuse of the payment regime by contracting parties and the increasingly costly and lengthy adjudication process.
Despite the publication of a number of surveys and recommendations, such as a 2011 consultation and 2022 research paper, there have been no further amendments to the 1996 Act.
However, similar legislation from elsewhere in the world could offer ideas to help UK policymakers keep up with the ever-changing global construction market.
Western Australia's Building and Construction Industry (Security of Payment) Act 2021 and its secondary instruments are among the latest legislation in common law countries to reform their industry's payment and dispute resolution regimes.
The 2021 Act, which came into effect incrementally after receiving royal assent in August that year, introduced the requirements for statutory monthly progress payments and a statutory adjudication review process, as well as streamlining the enforcement of adjudication determinations through monetary judgments.
It represents a notable shift away from its predecessor, the Construction Contracts Act 2004, towards a more interventionist and prescriptive approach.
Australian law benefits from narrower list of exclusions
Of all the broad exclusions listed throughout the UK's 1996 Act, section 105(2)(c) is seen by many commentators as preventing important construction operations from being covered by the legislation.
Specifically, it excludes from its definition of such operations the 'assembly, installation or demolition of plant or machinery … on a site where the primary activity is nuclear processing, power generation, or water or effluent treatment, or production, transmission, processing or bulk storage … of chemicals, pharmaceuticals, oil, gas, steel or food and drink'.
The exclusion list is exacerbated by its ambiguous drafting, leaving it to the courts to grapple with critical questions such as what a construction project's 'primary activity' is, and what the boundaries of the 'site' are. As a consequence, many vulnerable subcontractors working in these areas cannot access or rely on the rights afforded under the act's payment and adjudication regimes.
In contrast, Western Australia's 2021 Act encompasses a wider range of construction operations while excluding a far narrower list of specific work. Unlike the UK legislation, the simple yet concise wording of the 2021 Act aims to exclude the entirety of specific construction works, rather than just particular elements of them.
For example, it includes phrasing such as 'constructing or fitting out the whole or any part of a watercraft' – unlike the 1996 Act, which excludes much more specific elements such as the 'erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery'.
Rigid payment regime offers greater certainty
Another issue with the 1996 Act is the complex yet ambiguous nature of its payment regime, which is seen as a barrier to quick and timely cash flow between parties, particularly those further along the contractual chain.
For instance, section 110 states that 'the parties are free to agree how long the period is to be between the date on which a sum becomes due and the final date for payment'. This is in stark contrast to the more prescriptive sections 110A and 110B, which describe a rigid, decision tree-style course of action with fixed time frames.
This combination of drafting has led to an abundance of case law, with the disputing parties having to seek legal counsel to identify, for instance, what details to include in a valid payment notice or payless notice.
In comparison, the 2021 Act provides more complete, prescriptive and easy-to-follow payment and adjudication regimes, offering firm time frames for the submission of documents and clear consequences for not issuing notices in that time.
Moreover, the Western Australia government provides an abundance of guidance videos, statements, and payment and adjudication regime templates.
The 2021 Act states that although it is not mandatory to follow or use these, they 'contain the minimum statutory information required for forms of this type'. This therefore assures stakeholders that using these forms enables compliance.
The state government also publishes regular legislation bulletins, keeping stakeholders up to date with the latest amendments, provisions and requirements.
This directly contrasts with UK legislation, under which parties have to sift through a wealth of case law to identify the contemporary approach taken in the courts and what the applicable precedents are.
To streamline the payments process for the UK construction sector, similar prescriptive payment and adjudication principles, which detail key time frames and notice templates, could be adopted in a future revision to the 1996 Act.
Review prevents enforcement of erroneous adjudications
A third concern highlighted in industry surveys is that the enforcement of adjudication decisions under the 1996 Act places great emphasis on the adjudicator's decision being 'correct' in the first place, before 'the dispute is finally determined by legal proceedings, by arbitrations … or by agreement' where that is necessary.
This, coupled with the limited arguments that courts will accept for not enforcing or nullifying adjudicators' decisions, means the parties are almost wholly reliant on a single adjudication; except, where applicable, a secondary true-value adjudication takes place.
In contrast, the 2021 Act prescribes a review mechanism between the adjudicator's decision and its final determination. This allows qualifying adjudication decisions to be elevated to a senior adjudicator for review, to support, amend or nullify the original decision. The approach minimises, if not eradicates, the risk of having erroneous decisions being enforced by the courts.
Such a change is not without its disadvantages: the additional stage contradicts the fundamental principle that adjudication should be a quick and inexpensive form of dispute resolution.
Elongating the process also carries a risk of abuse, where the payer might postpone payment on purpose until the decision of the review adjudicator is finally reached and the fees have been paid.
Despite these risks, making provisions for such an interim process in the UK under the 1996 Act would provide the disputing parties with a secondary, low-cost and quick decision before being escalated to arbitration or litigation if required.
In addition, the 1996 Act's ambiguity about adjudicators' fees is seen as a barrier to smaller construction companies in pursuing claims through adjudication. The act could adopt a stricter and more transparent approach, by publishing maximum fees, particularly for adjudications of a smaller value.
By making provisions at a statutory level, this would give disputing parties greater confidence about costs and the accessibility of statutory adjudication.
'The 1996 Act's ambiguity about adjudicator's fees is seen as a barrier to smaller construction companies in pursuing claims through adjudication'
Model could be adopted in potential reforms
Table 1 summarises the key findings and differences between the two acts. Australian legislators have clearly learned from the problems experienced by the sector since the 1996 Act was passed, and sought to address the most pronounced issues that drag construction productivity down.
If changes were made to the 1996 Act, adopting the principles of a clearer and narrower list of exclusions together with fixed time frames, notification templates and an adjudication review mechanism, this could have a highly energising effect on the related regimes and the sector as a whole.
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Housing Grants, Construction and Regeneration Act 1996 |
Building and Construction Industry (Security of Payment) Act 2021 |
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Definitions of construction operations |
Excludes a broad list of construction operations, with ambiguous drafting |
Narrower exclusion list, with clearer drafting |
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Payment notification framework |
Complex yet ambiguous payment notification framework, with no approved templates |
Simpler, prescriptive payment notification framework with government-endorsed templates |
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Finality of the adjudicator's decision |
Considerable emphasis placed on individual adjudicators' decisions, with courts accepting limited arguments for non-enforcement of adjudicator's decisions |
Subject to qualification, an additional review is introduced between adjudication and final determination |
Table 1: Summary of differences between UK and Western Australia legislation
Thomas Gould MRICS is a senior dispute consultant in the dispute resolution department at Turner & Townsend.
This article is an adaptation of his Construction Law and Dispute Resolution MSc dissertation