Last week the Local Democracy, Economic Development and Construction Bill completed its passage through the House of Commons. After what should be its rubber-stamping by the House of Lords, the Bill should be enacted by the end of this year.

The Bill amends the Housing Grants, Construction and Regeneration Act 1996 ("1996 Act"). It will only affect construction contracts entered into after it comes into force. It seems this will not happen before late 2010 to allow for consultation on changes to the statutory Scheme. The Scheme's rules are implied into construction contracts that do not make certain provisions for adjudication and payments, as the 1996 Act requires.

If the bringing into force of the 1996 Act's changes is to be delayed, it remains to be seen whether the government in power in late 2010 (given the intervening general election) decides to bring them into force.

The writer's summary of what the Bill's changes to the 1996 Act will mean if and when they come into force (which a House of Commons research paper in May singled out for approval) is here. In particular, the changes will require significant alterations to all UK standard forms of contract and payment practices.

During the Bill's final passage through the Commons two government amendments were made to the proposed changes to the 1996 Act. These were the first, and will seemingly be the only, amendments. None of those that the Specialist Engineering Contractors' Group proposed (see previous Law-Nows) have been passed.

1. The first amendment would allow the appropriate minister (for England, Wales or Scotland) to make an order disapplying any or all of the provisions of the 1996 Act (as amended by the Bill) to any description of construction contract. The order would require the necessary, expedited, parliamentary approval. The 1996 Act currently contains an all-or-nothing power allowing only all of the 1996 Act's provisions to be disapplied to certain types of contract. A 1998 order disapplies the whole legislation to PFI/PPP project agreements as well as finance, development and statutory agreements, all as defined. The amendment would allow the disapplication of just some of the legislation from certain contracts.

In proposing the amendment, the government's minister said: "[This] approach would allow us to ensure that many of the valuable features of the 1996 Act, as amended by this Bill, continue to apply - for instance, the right to stage payments, the right to adjudication and the right to suspend performance in cases of non-payment - while giving us the flexibility to deal with specific issues of direct concern. The legislation could also respond proportionately to future contractual innovation."

This means that government could order, say, that the Bill's ban on pay when certified provisions, and even the ban on pay when paid provisions in the 1996 Act, would not apply to construction contracts entered into as part of a PFI/PPP transaction. Thus the impact of the legislation in banning equivalent project relief provisions which are standard to - and an important aspect of - PFI/PPP subcontracts may be avoided. This is the first time throughout the Bill's parliamentary passage that there has been any allusion to the legislation's impact on PFI/PPP contracts. It remains to be seen, however, what orders will be made.

2. The second amendment, which was previously promised, is to the Bill's ban on clauses that require one party to an adjudication (usually the referring party) to pay the other parties' costs and all of the adjudicators' charges, win or lose. The aim of such clauses is to deter adjudication. The Bill's ban was wide enough to ban pre-adjudication agreements that empower adjudicators to apportion how the parties should pay their charges (so that they may direct the loser to pay all of them). The amendment will exclude such agreements. It may not however save agreements that pre-determine how adjudicators' charges should be apportioned, such as the NEC3 Adjudication Contract, which requires the parties to share them equally.

For how the amended 1996 Act would look, if the Bill is enacted and brought into force, click here

References: House of Commons report stage on the 1996 Act changes and third reading

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 22/10/2009.