Construction law could hurt hard-up builders

Published on 16/08/2008 15:44

NEW legislation for the construction industry will help contractors get paid on time, but will place a greater burden on builders already suffering financial hardship.

The Construction Contracts Act is due to come into force in the first half of next year as a result of lobbying by contractors and sub-contractors about their treatment by developers.

Their main issue is with late or non-payment.

The bill has been published for consultation, with a closing date of September 12, but Lindy Patterson, head of construction at law firm Dundas & Wilson, said it is unlikely to be watered down as it has been years in development.

The act will give contractors the right to demand payment in a short period of time after submitting their invoice – expected to be two to three weeks – or force developers to give them the full amount they requested, without negotiation.

Currently, developers examine submitted invoices with a surveyor before discussing with the contractor the final amount they are willing to pay.

If a developer does not abide by the act, the contractor can go to adjudication which will resolve the dispute without the time or expense of going to court. Contractors will also be able to down tools if they are not being paid.

While the act will help ease cash flow problems for contractors, which are often small businesses, there are concerns about the pressure it will put on developers.

Patterson said: "Those at the bottom of the contract chain will get the full value for their work, rather than being dependent on companies further up the line.

"But it has come at an interesting time, given the state of the construction market. Developers are feeling the pain and they are the ones that will have to pay out.

"The question will be whether developers think it has gone too far once they scrutinise the bill."

The legislation, being introduced by the Department for Business, Enterprise and Regulatory Reform, will also cover verbal agreements, which are common in construction, for the first time.

There are potential issues with this as it will be hard to prove what was said, Patterson has warned.