June 2017

In 2015 an array of amendments was made to the Construction Contracts Act 2002 (CCA), to be implemented in three stages, namely on 1 December 2015, 1 September 2016, and 31 March 2017.

Stage 1 amendments

Previously, if a matter was referred to adjudication only payment dispute determinations could be enforced via Court. However, as of 1 December 2015 enforceability was extended to include rights and obligations determinations too. For example, the issue of whether work is defective, or a party’s claim/work is within the scope of the variation, is now enforceable.

Additionally, as of 1 December 2015 the distinction between residential and commercial construction contracts is largely removed – for example, the difference between progress payment provisions has been removed, and any payment claims must be accompanied by a prescribed form that outlines the payment process.

Stage 2 amendments

On 1 September 2016 the definition of ‘construction work’ was extended to include design, engineering and quantity surveying work. Naturally this covers the normal scope of works of architects, engineers and quantity surveyors, but it also covers unqualified persons that provide design, engineering and quantity surveying works/services as part of the building contract.

Under the amendment, parties to building contracts that relate to design, engineering and quantity surveying will now be able to access the payment process, the protection it affords, and commence adjudication as a claimant. However, in an effort to increase consumer protection, it also means that an adjudication claim could be brought against them as a respondent.

Adjudication is a means of dispute resolution, and has often been referred to as a ‘quick and dirty’ process because of the short time-frames involved. Given that many professions that offer design, engineering and quantity surveying work are likely to have professional indemnity insurance in place, which can be slow to approve cover let alone respond to a claim within five working days, it will be interesting to see how these professions and their insurers adapt to the new amendments.

The amendment only affects building contracts entered into or renewed from1 September 2016.

Stage 3 amendments

On 31 March 2017 the new retentions regime for constructions contracts came into force, which requires the payer to hold retentions on trust for the payee – the parties cannot contract out of this requirement.

The purpose of the new regime is to provide greater certainty of payment for contractors and subcontractors that are owed retention money for work completed, and to also ensure that the money held is managed responsibly. In respect of the latter, if money is not managed responsibly then directors could be implicated personally, and penalised accordingly.

So what does the new regime mean? In short, from 31 March 2017:

• All new and any renewed commercial contracts will be subject to the changes. There are no regulations which set a minimum threshold, so all retentions are caught under the regime.
• Existing contracts (entered into pre 31 March 2017) are not caught by the new regime.
• Retentions or ‘retention money’ means an amount withheld by a party to a construction contract (Party A), from an amount payable to another party to the contract (Party B), as security for the performance of party B’s obligations under the contract.
• Party A is to hold the retentions ‘on trust’ in the form of cash or other liquid assets readily converted into cash. Party A may intermingle the retentions with other funds – i.e. no need for a separate trust account.
• Alternatively, Party A can obtain a financial instrument such as insurance, a bond, or a guarantee to provide protection of payment of retention money.
• With either option, Party A is obliged to keep proper accounting records, and Party B is entitled to inspect those records at all reasonable times and without charge.

For further information, contact your lawyer now.