Construction adjudication is often described as a fast and effective way of resolving disputes in the construction industry. However, before either party can take advantage of the statutory right to adjudication, it is essential to determine whether the agreement in question qualifies as a “construction contract” under the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”).
What Is a Construction Contract?
A construction contract is broadly an agreement relating to the carrying out of construction operations. This includes:
- Carrying out construction work.
- Arranging for construction work to be carried out by others.
- Supplying labour for construction work.
- Providing professional services connected with construction operations, such as architectural, design and surveying services.
To be a construction contract, the agreement must first be a valid contract under normal legal principles, including offer, acceptance, consideration and an intention to create legal relations.
A construction contract can be a JVC (joint ventures contract), NEC (new engineering contract) or FIDIC contract.
Why Does It Matter?
If your agreement is a construction contract under the HGCRA, the parties benefit from important statutory protections, including:
The Right to Adjudicate
A qualifying construction contract carries a statutory right to refer disputes to adjudication at any time. If the contract does not contain compliant adjudication provisions, the rules contained within the Scheme for Construction Contracts will be implied.
Payment Protection
The HGCRA requires construction contracts to contain adequate payment mechanisms. If the contract fails to include compliant payment provisions, statutory payment terms can be implied automatically to protect cash flow throughout the supply chain.
Suspension Rights
Contractors may also obtain a statutory right to suspend work in the event of non-payment under a qualifying construction contract.
What Are Construction Operations?
The Act covers a wide range of activities commonly associated with building and civil engineering projects, including:
- Construction, alteration, repair and maintenance of buildings and structures.
- Roads, railways, pipelines, docks, harbours, sewers and other infrastructure works.
- Installation of mechanical and electrical systems.
- Site clearance, excavation, foundations and scaffolding.
- Landscaping and access works.
- Painting and decorating.
The courts generally interpret these provisions widely to ensure that genuine construction activities are captured by the legislation.
What Does the Act Exclude?
Not every project connected with construction falls within the HGCRA.
Common exclusions include:
- Oil and gas extraction.
- Mining and mineral extraction.
- Certain power generation, chemical, pharmaceutical and industrial process plant works.
- Pure supply contracts involving only the manufacture or delivery of materials or equipment without installation.
- Artistic works such as sculptures and murals.
The scope of these exclusions can be highly technical and often depends on the precise nature of the works and the primary activity carried out at the site.
Hybrid Contracts
Some agreements contain both construction operations and non-construction activities. These are commonly known as hybrid contracts.
In these cases, the HGCRA normally applies only to the parts of the contract relating to construction operations. This can create additional complexity when dealing with payment applications and adjudication referrals.
Residential Property Projects
One important exception concerns residential occupiers.
Generally, statutory adjudication and payment provisions do not apply where the employer is an individual engaging works to a property that they intend to occupy as their home. However, this is a fact-sensitive area and disputes frequently arise regarding whether the exemption applies.
Many residential building contracts still contain contractual adjudication clauses, meaning adjudication may be available even where the statutory regime does not apply.
For residential building contracts, see our Building Disputes page.
Can Oral Agreements Qualify?
Yes. Since October 2011, construction contracts no longer need to be in writing to qualify under the HGCRA. Oral agreements and orally varied contracts can still fall within the statutory adjudication regime.
Before Starting an Adjudication
Even where a construction contract exists, several issues should be considered before commencing adjudication:
Confirm the Right to Adjudicate
Check whether the right to adjudicate arises from:
- The HGCRA.
- A contractual adjudication clause.
- A separate agreement between the parties.
Ensure the Dispute Has Crystallised
A dispute must have arisen before it can be referred to adjudication. Typically, this means:
- A claim has been made.
- The other party has had a reasonable opportunity to respond.
- The claim has been rejected, ignored or disputed.
Prepare Thoroughly
Because adjudication operates on extremely tight timescales, parties should ensure all relevant evidence, calculations, witness statements, expert reports and legal arguments are assembled before commencing proceedings.
Follow the Correct Procedure
The Notice of Adjudication, Referral Notice, service requirements and adjudicator nomination process must all comply with the contract and applicable legislation. Procedural mistakes can jeopardise an otherwise strong claim.
How We Can Help
Determining whether a contract falls within the HGCRA is often the first and most important step in any construction dispute. A mistaken assumption about adjudication rights can result in wasted time, unnecessary costs and unenforceable decisions.
Our construction disputes team can advise on:
- Whether your contract qualifies as a construction contract.
- The availability of statutory or contractual adjudication.
- Payment and suspension rights.
- Jurisdictional challenges.
- Commencing and defending adjudication proceedings.