This article was produced by Olswang LLP, which joined with CMS on 1 May 2017.
Section 112 of the Housing Grants, Construction and Regeneration Act 1996 (the “Act”) gave parties to a construction contract the right to suspend work in the case of non-payment. Contractors and others were thereby handed a much-needed tool to compel payment of sums withheld without cause (and without a notice). Yet the section has received scant attention (in case law and commentary). Cue hole-plugging duo Nick Lane (Olswang) and Rick Shaw (Lend Lease), whose commentary on section 112 appeared this month in Construction Law Journal.
The article highlights some key weaknesses in the drafting. Indeed, the Section has nearly as many holes as the plot of Inception (movie enthusiasts click here). In particular:
- The Section as enacted did not compensate the suspending party for the cost or time taken to remobilise after a period of suspension (e.g. storage of materials, retaining subcontract labour). In many cases the advantages of suspending were more than outweighed by these potential costs. The amended Act (pursuant to the Local Democracy, Economic Development and Construction Act 2009) now provides for relief in respect of both the time taken to remobilise and the cost of doing so. Expenditure must be of a “reasonable amount” and “reasonably incurred”. It is not clear what the distinction is, or how reasonableness will be assessed;
- Section 112(4) entitles a party to relief for the full period of any suspension, even if the suspension is of a very minor aspect of the suspending party’s obligations, as long as this “affects” “any work” (even if the effect is indirect). A suspending party might therefore use the fact of non-payment opportunistically, suspending a small element of the work whilst working to mitigate culpable delay elsewhere on the job; and
- The mechanism for relief is at odds with standard contractual mechanisms. In some cases, double recovery might ensue. Read the article for the full explanation (it’s as mind-bending as incepting a dream within a dream within a dream). In a nut shell, where a contractual time limit relates to a period (e.g. 10 months to complete the works), a period of suspension is “disregarded”, i.e. the works took 11 months, including a one month period of suspension, but let’s pretend it took 10. This disregarding is retrospective and based on the actual time suspended. By contrast, most standard form contracts allow for extensions of time based on hypothetical relevant events, assessed prospectively. If those relevant events include suspension, the suspending party gets a month more to do the work (i.e. 11 months instead of 10 months). The work actually takes 11 months (due to the suspension), but we’re all pretending it took 10. Confused yet? This could have a commercial impact – for example, an Employer may lose out on a month of liquidated damages if the suspending party would but for the double relief have been considered to be in culpable delay.
The authors’ conclusion is that while some of the Section’s wrinkles have been ironed out by the amendments, yet more have been created (only some of which can be accommodated by carefully drafted contracts).
Let us hope that the commentary ‘incepts’ full and frank discussion about statutory suspension, and how suspenders and suspendees alike can avoid the pitfalls in the drafting.
