Proposed Reforms for Payment Provisions under HGCRA

Proposed Reforms for Payment Provisions under HGCRA

The Housing Grants, Construction and Regeneration Act 1996 (‘HGCRA’)[1], modifies the common law [2] principle that entitled the contractor to payment once substantial completion has been achieved. A party to a construction contract which is more than 45 days is entitled to payment by instalments, stage payments or other periodic payments for any work under the contract [3] .

However, The HGCRA does not impose a minimum period of time after which a payment needs to be made. The parties are free to agree on the amounts of the payments and the intervals or the circumstances in which they become due [4].slot deposit dana

Hence, the main contractor would be able to impose a long period of time before payment becomes due and payable, and consequently put pressure on smaller subcontractor’s cash flow.  The legality of this approach has been confirmed by the Technology and Construction Court which held that an adequate stage payment did not have to ensure instalment payments across the whole period of construction[5].

An analysis of Carillion’s balance sheets after its collapse, in January 2018, revealed such behaviours. Carillion was not an exception, as the tier one contractors have been found by the Department of Business, Innovation and Skills to be net receivers of trade credit from their subcontractors. In fact, the majority of contractors are Small and Medium Enterprises companies. They often act as subcontractors and are awarded contracts[6] based on the competitive tendering process. They often have little leverage on changing the length of payment cycles.

A possible reform would be to impose statutory maximum periods upon which payment becomes due and payable. An example of such statutory maximum periods can be found in The Public Contracts Regulations 2015 that imposes a duty to pay within 30 days of a sum becoming due on public sector contracts. To be effective, the proposed reform needs to have a set of regulations that imposes transparency on the payment terms for the parties to a construction contract, as well as penalties on the parties defaulting to issue timely payments. Such measures could resemble the one brought by the Reporting on Payment Practices and Performance Regulations 2017[7].

Whilst such reform requires additional cost and intervention in a contractual framework that is already regulated, it ensures frequent payments throughout the project’s supply chain and mitigates the risk of losing the money held by the contractors if they become insolvent before it is paid. Ultimately, it ensures that the client or main contractor will not use the subcontractor as creditor and that payments will be due frequently .

[1]Part II as amended by the Local Democracy, Economic Development and Construction Act 2009 (‘LDEDC’)
[2]Appleby v Myers (1867) L.R. 2 C.P. 651; Hoenig v Isaacs [1952] 2 All E.R. 176; Bolton v Mahadeva [1972] 1 W.L.R 1009
[3]Housing Grants, Construction and Regeneration Act 1996 s.109(1)
[4]Housing Grants, Construction and Regeneration Act 1996 s.109(2)
[5]Grove Developments Ltd v Balfour Beatty Regional Construction ltd [2016] EWHC 168 (TCC)
[6]Public Contracts Regulations 2015 Regulation 113(2)
[7]The Reporting on Payment Practices and Performance Regulations 2017


Construction Solicitor

Hamza Sekkar

Partner & Director of Legal Engineering

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FAQ: Construction Law Questions

Starting construction works in the UK? Here are some of your most asked question Regarding Construction Law.

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Read the frequently asked questions and their answers regarding Construction Law and other legal matters in the United Kingdom.

1. What license does a construction based business in the UK need?
Depending on the type of work the business is doing, there may be specific licensing requirements. Industry associations can be a good source of information about the specific licenses that may be required for your type of work. 
2. Will Brexit have an effect on public procurement for UK construction Business?
 There is almost no immediate change in public procurement in the UK. Although the UK’s procurement rules are based on EU directives, they have been implemented into the UK through national legislation (such as the 2015 Public Contracts Regulations, the 2016 Public Utility Contracts Regulations and the 2016 Concession Contracts Regulations) (and similar legislation in Scotland and Northern Ireland) legal). Except for some changes (such as quoting OJEU and the European Commission), these changes still have the same full force and effect to a large extent (although as mentioned above, there are some technical amendments that do affect the enforcement rights of EU contractors) .
3. Will Brexit affect the access of EU contractors to the UK Public procurement Market?
Under the TCA agreement, both the United Kingdom and the European Union are committed to providing more access to each other’s procurement markets and increasing the transparency of public procurement procedures. Therefore, TCA is based on the procurement access commitments of all parties stipulated by the GPA. Therefore, suppliers in the EU and the United Kingdom can now access each other’s procurement in the field of natural gas and heating, and these private-sector public utilities are acting in a monopolistic manner. Signed contracts, as well as service contracts for hotels, telecommunications, real estate and education. Public contracts outside the scope of GPA and TCA arrangements include public contracts related to medical services and national defense. This means that in EU or other GPA procurements, UK suppliers cannot enjoy the guarantees of these contracts. Similarly, the European Union and other GPA providers cannot automatically obtain UK public contract opportunities in these areas.
4. Is English Law still suitable for Construction projects after BREXIT?
Brexit has not diminished the advantages of using British law as the law governing contracts. The exclusive jurisdiction clause can still be used as before to give the UK courts binding jurisdiction and to ensure that the resulting disputes in EU member states are based on the Hague Convention Enforceability of judgments of the English courts. Agree to the future relationship agreement. The parties should continue to use English law in the contract and should continue to use the exclusive English jurisdiction clause, which is still their preferred option. If it is the preferred method of resolving disputes, Brexit will not reduce the advantages of arbitration. Similarly, when arbitration is the designated method for resolving disputes, English law can still be selected as the governing law of the agreement, which will be the same as before Brexit.
5. What are the standard construction contracts in the UK jurisdiction and what are their main differences between them?
There are many standard forms of construction contracts, and some options require contractors to:
  • Build only
  • Establish and implement specific design elements;
  • Design and build; or
  • Assist in design and procurement, and manage others to build.
It is possible to hire contractors based solely on the design, but this is usually before the construction phase.
6. Is Collaborative contracting commonly used in the UK? What are the different partnership options available for contractors?
The “2018 National Construction Contract and Law Report” issued by the National Bureau of Specification (formerly the “National Building Code”, which latest version was published in February 2020) shows that 3% of the surveyed/participated projects used Cooperation/joint contracting. In comparison: traditional procurement (46%); design and construction procurement (41%); construction management (3%); and management contracting (1%).
7. What are the requirements for a legally binding Construction Contract under UK jurisdiction?
The Elements required to create a legally binding contract are: offer, acceptance, consideration and intention. The Housing Grants, Building and Renewal Act 1996 (as amended) (HGCRA) applies to contracts for “construction work” in England and Wales (with certain exceptions). What constitutes “construction work” is defined in HGCRA. HGCRA requires contracts related to such operations to meet minimum requirements. If the contract fails to do so, it will imply that the contents of the “Construction Contract Plan” (HGCRA) or “HGCRA” comply with the contract provisions.
8. What are the standard types of Insurance used or required in construction projects?
Most companies have a statutory obligation to maintain employer liability insurance, which provides insurance for the death or personal injury of employees during their employment. Other insurances commonly used include:
  • Public Liability Insurance: Provides coverage if due to negligence the death or personal injury of someone other than the employee and the loss or damage of third-party property (that is, property other than the project)
  • Professional indemnity insurance: Underwrite the legal liability of the insured (if negligence), and provide defective design insurance, but does not include defective workmanship or materials.
  • All risk insurance (or engineering insurance): Underwrite the risk of any material loss or damage to the project and on-site.
  • Existing building insurance: Employers usually insure any existing building to prevent loss or damage caused by specific hazards (such as fire, lightning, flood, etc.).
9. In case of litigation, is there a time limit beyond which the parties to a construction contract may no longer bring claims against each other?
Unless the contract is concluded as a deed, the statutory limitation period for breach of contract claims is six years, in this case twelve years. The time is usually calculated from the date of actual completion. The statutory limitation period can be shortened through the contract, and the statutory limitation period can be extended, provided that very clear language is used. There is a statutory time limit for filing a tort lawsuit (but the ability to file a tort lawsuit against a construction project is limited).
10. Is the contractor allowed to suspend work in case of a construction contract in England?
HGCRA contains a statutory right to require contractors to suspend any or all of their obligations in the event of non-payment after giving at least a 7 days’ notice. In addition, unless there are contractual rights (very unusual), the contractor cannot stop the project.
11. How are construction contracts disputes resolved?
Construction contracts disputes are usually resolved through adjudication, litigation and arbitration. The parties can also use mediation in litigation or arbitration procedures to resolve disputes, which is actively encouraged by the court.
12. Do UK courts recognise international jurisdiction, in case the contract provides it?
After leaving the European Union, the United Kingdom itself became a party to the Hague Convention on the Choice of Courts Agreement (the Hague Convention). The Hague Convention requires contracting states (currently all EU member states, Mexico, Singapore and Montenegro) to recognize the exclusive right to choose court agreements in favour of other contracting states and enforce any resulting judgments. The United Kingdom has also made bilateral arrangements with many other countries (mainly the Commonwealth of Nations) for mutual enforcement of judgments. In the event that none of the above conditions applies, the party seeking to enforce the foreign judgment must reopen the lawsuit in England to recover the judgment amount as a debt.
13. How Common is the use of direct agreements and Collateral agreements?
Collateral warranties are usually used. It is a separate contract between the contractor and a third party in which the contractor: guarantees that the obligations under the construction contract have been fulfilled and will continue to be fulfilled; agree to maintain insurance; and grant copyright licenses, and in some cases (including) Agree to the right to use step by step.
16. Does the Uk recognise the Concept of ‘Force majeure”or frustration? and does it provide remedy to the affected party?
Force majeure has no special significance in England. Nevertheless, the construction contract may still involve force majeure, and the content covered is not yet clear, which may cause problems. Elements that may be considered force majeure may be listed as clear reasons that allow the contractor to request additional time and/or money, or they may be reasons for suspension (if the suspension lasts longer than a predetermined period, the contract is suspended). The fact that the contract becomes uneconomical is usually not a reason for force majeure. In the context of the current COVID-19 global pandemic, the meaning of force majeure under British law may be closely watched. Frustrations are recognized in the UK. If the contract is “frustrated”, it will be automatically terminated. The contract is effectively terminated, and the parties do not have to do anything, and the parties can be exempted from performing more obligations under the contract (although, if the party assumes the obligations before the contract is frustrated, it must still perform these obligations). The parties cannot demand compensation from the other party for future non-performance.

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