Establishing whether a professional consultant appointment comes within the Construction Act can be important to consultants wanting to exercise their rights under the Construction Act, for example, their rights in relation to payment or suspension.
It could also be important to employers wanting to pursue professional negligence claims against a consultant via adjudication.
The Construction Act 2016
The Housing, Grants, Construction and Regeneration Act 1996 as amended (the “Construction Act”) sets out certain mandatory requirements that construction contracts must include. Perhaps the most notable are the following measures:
• Stage payments (s109);
• Dates for payment and payment notices (s110);
• Right to suspend works for non-payment (s112);
• Prohibition on conditional payments (113); and
• Right to adjudication (s108).
In the absence of such provisions, terms from the Scheme for Construction Contracts (England and Wales) Regulations 1998 (the “Scheme”) will be implied into the contract.
The parties cannot contract out of the provisions of the Construction Act or the Scheme.
Which contracts are covered by the Construction Act 1996?
The Construction Act applies to “construction contracts” for the carrying out of “construction operations” within the UK.
Broadly speaking, the statutory definitions of these terms are wide and cover all contracts involving building operations, both new buildings and maintenance or repairs of existing buildings, within the UK.
The terms capture more than just contracts that relate to pure construction, for example professional consultant appointment for architectural, design and surveying work as well as those for advice on building, engineering or decoration works as well as to specialist contractors.
However, the Construction Act sets out a number of exclusions, such as drilling for oil and gas, and certain works on sites where the primary activity is power generation or water treatment.
Contracts for the supply only (i.e. not installation) of building materials, plant or systems are also excluded, as are works which are wholly artistic in nature.
Another main exception is construction work for residential occupiers.
In addition, some contracts are specifically excluded from the application of the Construction Act 1996 by the Exclusion Orders, such as PFI contracts and certain agreements under the Town and Country Planning Act 1990.
Why does this matter?
Parties may incorrectly assume that their works constitute construction operations and therefore that the statutory provisions apply to their contract, when they do not.
The practical consequence of this issue is that, under a contract with no relevant express provisions, parts of the works may be deemed to fall within the scope of the Construction Act and parts may not.
This creates what is known as a hybrid contract.
This will impact a party’s ability to rely on the implied provisions regarding payment and a party’s right to adjudication.
Similarly, when a contractor doesn’t know that its professional consultant appointment is protected by the Construction Act, he might miss out on important protections, by not bringing it up with his employer.
So, what is a “construction contract”?
First of all, a “construction contract” needs to be a valid contract. In other words, it must comply with all the usual rules applicable to such contracts, including a valid offer and acceptance, consideration and intention to create legal relations.
For construction contracts entered into on or after 1 October 2011, there is no requirement that they must be in writing in order to fall within the provisions of the Construction Act. They may be wholly or partly oral and/or may have been varied orally.
The definition of a construction contract, set out in Section 104(1) of the Construction Act is very broad and is intended to cover:
1. Agreements in relation to “construction operations” for any of the following:
a) the carrying out of construction operations;
b) arranging for the carrying out of construction operations by others, whether under sub-contract to him or otherwise;
c) providing his own labour, or the labour of others, for the carrying out of construction operations.
2. Agreements for professional services in relation to “construction operations” as set out in Section 104(2) of the Construction Act, such as:
a) architectural, design and surveying work, and/or
b) advice on building, engineering, interior or exterior decoration or the laying out of landscape.
However, it does not include a contract of employment (Section 104(3)).
Since the definition of a “construction contract” includes arranging for work to be carried out by others, it therefore covers management contracts.
An employer’s contract with a contract administrator would also be included, because the employer would be arranging for the carrying out of contract operations by another.
At the same time, contract administrators, project managers, employer’s agents, and so on could be considered as carrying out “surveying work”, roles which often are undertaken by building surveyors and quantity surveyors. I see no reason why this wouldn’t also fall under section 104(1)(b), “arranging for the carrying out of construction operations by others”.
Similarly, since the definition includes the supply of labour, it extends to the contracts of construction employment agencies who arrange for labour to attend site to work under the direction of the contractor.
What are “construction operations”?
Section 105 of the Construction Act defines “construction operations” by reference to two detailed lists, rather than attempt a general definition of construction operations:
- the first list includes certain works which are regarded as “construction operations” and therefore fall within the ambit of the Construction Act (Section 105(1));
- the second list excludes certain works which are not regarded as “construction operations” (Section 105(2))
If the operations in question do not fall within the list in Section 105(1), they are not “construction operations” under the Construction Act, and so an agreement for them to be carried out will not constitute a “construction contract” pursuant to Section 104.
Works which are ‘construction operations’ (s 105(1))
The statutory definition in Section 105(1) includes the type of work one would expect in traditional building and civil engineering projects as well as some less obvious works:
- construction, alteration, repair, maintenance, extension, demolition or dismantling of buildings, or structures forming, or to form, part of the land (whether permanent or not) (Section 105(1)(a));
- construction, alteration, repair, maintenance, extension, demolition or dismantling of any works forming, or to form, part of the land, including (without prejudice to the foregoing) walls, roadworks, power-lines, electronic communications apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipe-lines, reservoirs, water-mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence (Section 105(1)(b));
- installation in any building or structure of fittings forming part of the land, including (without prejudice to the foregoing) systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or security or communications systems (Section105(1)(c));
- external or internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration (Section 105(1)(d));
- operations which form an integral part of, or are preparatory to, or are for rendering complete, such operations as are previously described in this subsection, including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection, maintenance or dismantling of scaffolding, site restoration, landscaping and the provision of roadways and other access works (Section 105(1)(e));
- painting or decorating the internal or external surfaces of any building or structure (Section 105(1)(f)).
Works forming part of the land
In Section 105(1)(a) and (b) there is reference to buildings, structures or works forming, or to form, part of the land and in Section 105(1) (c) there is reference to fittings forming part of the land.
The operations covered by Section 105(1)(a) and (b) therefore include works which will form part of the land in the future, whereas those in Section 105(1)(c) concern only those which do in the present.
Whether something forms (or will form) part of the land is a question of fact and degree.
The test for fittings forming part of the land will have to be applied to the facts of each case individually to yield the correct answer.
Systems installed in buildings
Agreements for not only the installation but also the maintenance and servicing of systems in a building such as heating, ventilation and air conditioning are agreements for construction operations.
Supply of goods
A contract for the supply of goods only is not a construction contract within the meaning of the Construction Act, even if the goods are building or engineering components delivered to a site where construction operations are being undertaken. A contract for the supply of such goods and for the installation of the goods is a construction contract.
Works which are not ‘construction operations’ (Section 105(2))
Section 105(2) sets out a list of works and operations which are excluded from the definition of “construction operations”.
The list is as follows:
- drilling for, or extraction of, oil or natural gas;
- extraction (whether by underground or surface working) of minerals, tunnelling or boring, or construction of underground works, for this purpose;
- assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is (i) nuclear processing, power generation, or water or effluent treatment, or (ii) the production, transmission, processing or bulk storage (other than warehousing) of chemicals, pharmaceuticals, oil, gas, steel or food and drink;
- manufacture or delivery to site of (i) building or engineering components or equipment, (ii) materials, plant or machinery, or (iii) components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or for security or communications systems, except under a contract which also provides for their installation;
- the making, installation and repair of artistic works, being sculptures, murals and other works which are wholly artistic in nature.
The Construction Act does not apply to a contract with a residential occupier where that person occupies or intends to occupy a dwelling as his residence (Section 106).
For contracts entered into prior to 1 October 2011 (or 1 November 2011 in Scotland), the Construction Act does not apply if the contract is only oral, so the parties’ arrangements must be in writing, or evidenced in writing in accordance with Section 107.
The Construction Contracts Exclusion Order 1998, SI 1998/648 excludes a number of contracts from the remit of the HGCRA 1996, such as development agreements, finance agreements that are ancillary to construction operations (e.g. insurance contracts, contracts for lending money), PFI contracts and certain other government related contracts eg agreements for the adoption of sewers (see regulations 3–6 of the Exclusion Order for the full list).
And then there are hybrid contracts
It is possible for a contract or professional consultant appointment to cover both construction operations that fall within the Construction Act, and works that are excluded from its ambit—these are known as hybrid or mixed contracts.
Where this occurs, the Construction Act only applies to the construction operations.
There is no principle that a contract will be either entirely subject to the Construction Act or not subject to it.
Similarly, there is no principle that each contract in a chain of contracts will be uniformly subject to or not subject to the Construction Act.
If disputes under such contract or professional consultant appointment are referred to adjudication then the adjudicator will not have jurisdiction to deal with the whole of the dispute referred, but will have jurisdiction to deal with that part of the dispute which constitutes a construction contract (Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin Joint Venture).
The need for specialist advice
Whether or not a contract or a professional consultant appointment falls within the definition of a construction contract under the Construction Act can be a very technical issue.
At the outset, the parties must bear in mind that if the contract is excluded under the Act, key statutory rights and remedies will not be available.
Equally, those parties contracting on an oral basis, or with little in writing, need to bear in mind that their contract might be subject to the rights and remedies afforded by the Construction Act, because the contractual services provided will be regarded as constriction operations.
Prior advice to the formation of a construction contract or professional consultant appointment would give you the best chance of avoiding any disputes as to the applicability the Construction Act and the consequent mechanisms for payment and dispute resolution available to you.
For further information or to discuss a matter please contact me.
This content is provided free of charge for information purposes only. It does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by Adriana Badescu.