This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
At first glance, in the context of Section 104(2) of the Housing Grants, Construction and Regeneration Act 1996 (“HGCRA”), deciding whether you have a construction contract seems fairly clear. Architectural work, building and engineering are all examples of “construction operations” which fall under the definition of a construction contract according to HGCRA and which are caught by certain of its mandatory requirements. However, there are nuances pertaining to the interpretation of HGCRA, such as when an act should be described as a construction operation, which case law has failed to unravel.
A current point of controversy relates to collateral warranties. A construction contract is subject to adjudication as a means of dealing with disputes. The recent ruling in Parkwood Leisure Ltd v Laing O’Rourke Wales and West Ltd sought to establish whether, for the purposes of referral to adjudication, a collateral warranty can be described as a “construction contract”. You might be forgiven for assuming that, because construction contracts are defined as contracts for the carrying out of construction operations, a collateral warranty cannot be a construction contract, because it offers the beneficiary no control over how the works are completed, or whether they are completed at all in the event of termination of the underlying contract. However, Parkwood argues that, if the collateral warranties are entered into before practical completion, they will constitute a construction contract. This means that, quite aside from ascertaining whether the collateral warranty pertains to “construction operations”, the timing of entry into the warranty becomes a live wire and, going forward, negotiations surrounding collateral warranties are likely to be prolonged.
In summary, if you’re giving a collateral warranty, you need to choose your words and timing carefully if you want to avoid the threat of statutory adjudication.
