Ken Salmon, head of construction at Mace and Jones reveals why the proposed changes to the construction act will cost more time and money.

SINCE the Housing Grants Construction and Regeneration Act 1996 came into force in May 1998, adjudicators and judges have been tirelessly unravelling its complexities. These arose from the novelty of the processes, some poor parliamentary draughtsmanship, and not forgetting the ingenuity of people determined to avoid payment.

The workings of the Act have been under review for the past three years. All interested parties have had their say about what’s wrong with the Act, and how it can be put right. The DTI has published its third set of proposals. Most commentators seem happy with what will be changed, fewer with what will not be changed. I may be in a minority but I am unhappy with something that is going to be changed.

To overcome the effects of the decision in RJT Consulting Engineers v D M Northern (Ireland) Ltd in 2002, the DTI wants to extend the Act to oral and part oral contracts. RJT was an unfortunate case where some but not all the contract terms were in writing. The court said all the terms, not just the main terms or even the relevant terms, had to be in writing.

If any one thing was agreed but not put into writing, the Act did not apply. That was harsh.

We are now going to the other extreme. Any agreement for “construction operations” will be subject to the Act.

One of the most difficult things in the legal world is to prove the existence and terms of an agreement that is not written down anywhere. You can see why. It becomes one man’s word against another’s. I’ve sat in courts for days at a time hearing witnesses recollect what was or was not said or agreed. It is time-consuming and expensive and there are no short cuts because the judge has to hear all the evidence.

At present, the adjudicator’s decision is often made on documents only, without seeing the parties, much less hearing evidence from the witnesses. True, witness statements are often used (and there may be times when the adjudicator finds it difficult to decide who is telling the truth by just reading them).

That, I am afraid, will change if purely oral contracts are subject to the Act. Mini-trials with barristers, solicitors, or other claims professionals will become the norm. How else except by seeing and hearing the witness and testing them by cross-examination, will the adjudicator be able to decide who is telling the truth?

There is another problem. Under the Act as it stands, the adjudicator can make a binding decision about what the terms of the contract are, but not a binding decision as to whether or not there is a contract at all. The court will review any such decision, because if there is no contract the
adjudicator has no jurisdiction.

With oral contracts, there is an even greater chance that not all the terms have been agreed in the first place. So there will be a greater risk that the adjudicator’s jurisdiction will be open to challenge, leading to less certainty and more appeals to the court.

Adjudication already costs thousands, sometimes tens or even hundreds of thousands of pounds. These complexities will add to the cost.

If the proposal is made law, disputants can still choose between adjudicating, which involves irrecoverable expense to get a decision, which might or might not be binding, or is at best, only temporarily binding. Or going to court or arbitration, avoiding any jurisdiction problem for a fully considered and final decision and cost.

So is there any real need to extend the Act to oral contracts? Where is the clamour? Only those too sloppy to write their contracts down will be left outside the Act, but with their normal remedies intact. I suggest there is no clamour; no need and it would be no kindness to extend the Act as proposed.

However, there is time to think again. If the Act is to be extended, then extend it only, to contracts where the basic terms: parties, price, work and time or the material terms, are in writing. That would be a fairer compromise. It will not get rid of the problems but will reduce the number of disputes in which they arise.

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