Contractors devise forms to flout Act

Exclusive by Graham Ridout



Some leading main contractors have been accused of callously exploiting loopholes in the construction Act to extend payment periods to subcontractors and put obstacles in the way of going to adjudication.

John Huxtable, chief executive of the Confederation of Construction Specialists, said he had examined the forms of contract issued by more than 50 main contractors and that all of them "partially or completely" ignored the spirit of the Act.

The Act came into force in May and was intended to give subcontractors surety on payments, by stipulating when firms are paid and telling them how much they will receive. The Act also gives firms the right to suspend work within days in the event of non-payment, and the right to speedy adjudication of any grievances.

Huxtable said that one of the common ruses was to "push back the due date for payment." Under a standard DOM/1 subcontract, the maximum period that a subcontractor would have to wait from starting on site to receiving payment is 48 days - 31 days from the start date to the due date plus 17 days from due date to payment.

In the subcontract conditions issued by Shepherd Construction, payment will "become due 42 days after the end of the month in which the application for payment for the interim payment was received by the contractor (Shepherd)." Huxtable calculated that this could mean subcontractors had to wait up to 78 days - 31 days to the end of the month, then 42 days to the due date, then five days to payment.

Gordon Ray, Shepherd Construction's commercial director, said: "We obtained specialist advice in advance of the 1998 DOM/1 reprint to ensure that the update of our standard subcontract amendments were strictly in accordance with the provisions of the Act, whilst at the same time protecting our established commercial position."

Shepherd's contract was drafted by leading law firm Masons. Ray added that an update of these standard amendments will be implemented at the turn of the year.

Huxtable said that other major contractors were using similar conditions to those employed by Shepherd.

Clauses covering a subcontractor's right to suspend work are also being tampered with, Huxtable said. Under the Act, a firm is required to give "at least seven days' notice" to suspend work if it does not receive payment. CCS's chief executive said that he had seen a number of cases where the notice period had been extended to 14 or 21 days. "Main contractors are exploiting the weak drafting of the Act to extend the 'at least seven days' to a period much longer than intended."

He has also noted clauses drafted in a way that are designed to lengthen the period before an aggrieved party can apply for adjudication if a dispute arises. Huxtable said that the common way was to refer to the issue as not being a dispute but a "cause for dissatisfaction." A period would then be specified for discussing the "dissatisfaction" and only if this fails "will it be deemed to be a dispute."

Huxtable said: "This introduces at least one month's delay before a specialist can seek adjudication. This is particularly difficult for specialists to argue against as the clauses are worded in a way that seem conciliatory and in the spirit of Latham. But all it is doing is further delaying payment."

Huxtable said: "We seem to be going back to the sad old days when specialists only knew what they were being paid when they actually got the money."

Once the CCS has fully analysed all the main contractors' subcontracts, it will be sending its findings to construction minister Nick Raynsford. Last week Raynsford said he would consider tightening the Act if it was not working (see page 32).