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Latham's bid to curb litigation comes into force tomorrow.


The Construction Act

From 1 May expensive and protracted disputes in construction should become a thing of the past.

That is the theory anyway. Tomorrow (Friday) the Housing Grants, Construction & Regeneration Act 1996 - better known to the industry as the Construction Act - comes into force and, it is hoped, will spawn a new dispute-free era in construction.

Born out of the 1994 industry review by Sir Michael Latham, the legislation intends to help construction projects - and thus construction companies - become more efficient by cutting out adversarial and litigious ways of doing business. Alongside the Act is the government's Scheme for Construction Contracts which also comes into force on 1 May - basically a fall-back scheme in case contracts are drafted without including the Act's requirements.

But turning around the habits and practices developed over decades is not simple. While the thought of reducing the amount spent by the industry on legal fees is supremely attractive, whether the Act is the instrument with which to achieve this still appears to be unclear.

What is for certain is that there will be changes in the way firms do their business - and that those who are unprepared are likely to become unstuck.

Two areas of contract reform are dealt with in the Act:

All of these issues apply to clients, consultants, contractors and subcontractors involved in construction projects throughout England, Scotland and Wales. And while they are all significant, it is the adjudication clauses which look set to have most impact.

The legislation means that at any time in the contract, either party can take a dispute to an adjudicator for a ruling. A strict 28 day time limit is set on the process to ensure the dispute is resolved and work continues.

While the adjudication is binding for the duration of the contract, each party will still be able to appeal against the decision either in arbitration or through the courts. But it is intended that, if the process is used correctly with problems solved as the contract progresses, such appeals will be rare rather than the norm.

All this leaves the vital question - what does it actually mean to you and what should you be doing about it?

First thing is to get yourself some information about the Act. Just about every top law firm in the UK has now produced its own guide to the legislation so contacting your own legal adviser would probably be a good start.

But the Construction Industry Council has also now published its Guide to construction adjudication. This covers all aspects of the new legislation starting with contract drafting (including its own Model Adjudication Procedure), how to get hold of an adjudicator and what to do once you have one (see box). The CIC also intends to update the guide as the legislation settles in and precedents are set.

The best advice once you have the basics of the Act sorted out is to make sure that you have systems in place to ensure contract documentation and records are kept up to date and organised. Although the 28 day timescale can be extended at the adjudicator's discretion to 42 days, this leaves very little time to assemble a case once notice is served, so the more prepared records the better.

Training is also essential if firms are to reduce reliance on expensive legal advice every time notice of an adjudication is served. Simply having someone within an organisation who knows what to do and can react quickly, say the experts, will be vital, particularly in the early days of the legislation.

Having such knowledge in-house will enable all future contracts to be modified to incorporate the new standard conditions. It is important to note that although the government has provided a fall-back scheme for adjudication, most experts believe it is wise to include one of the standard forms now available such as the CIC's MAP.

The Association of Consulting Engineers also advises that professional indemnity policies are checked to make sure cover extends to binding adjudication decisions. Any new policies should be examined to ensure there are no onerous clauses.

The view of most observers is that although there are still many uncertainties about the Act and the situations it will throw up, the basic thrust is in the right direction. And if the construction industry approaches it sensibly and in the spirit intended there are savings to be won - less management time lost through dispute, and less money, eventually, spent on lawyers.

Antony Oliver

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