A NEW Bill which could have a 'potentially disastrous' effect on contracts law is being targeted by the Association of Consulting Engineers in an effort to reduce its impact on the industry.
The Contracts (Rights of Third Parties) Bill will reform the 'privity' rule that currently allows a contract to be enforced only by the parties who signed it. It will allow the creation of third party rights.
Speaking this week at a Society of Construction Law meeting ACE director of legal affairs, Frances Paterson described the Bill as 'the most significant change in contract law for 30 years'.
She claimed it would be 'much more far reaching than the Construction Act'.
The Bill opens up the possibility of subcontractors suing the client for late payment. However, it will also allow rights to be 'purportedly conferred' on a third party.
This could lead to clients unwittingly giving benefits to, for example, subcontractors, residents and suppliers which could lead to 'enormous uncertainties and consequent expense'.
'A good example would be that residents could potentially sue a contractor if they thought it was in breach of a clause in the contract telling it to work as quietly as possible,' said Paterson.
The Bill entered the House of Lords in December and could receive Royal Assent by Easter. It is expected to become effective in October. The ACE has accepted that it is too late to stop the Bill and is instead drafting amendments.
ACE is also re-drafting its 1995 Conditions of Engagement to include a 'third party rights clause'. This will say that no rights are expressly or purportedly conferred on any third party.