Do I have a construction contract?

This might sound like a question with an obvious answer, but as ever with lawyers involved, it’s more complicated than you might think (or than it probably needs to be).

The question is important because if you have a construction contract as defined by the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act), that Act will place certain obligations on the contracting parties. They include most significantly the right to interim payments in most cases, and the right to refer any dispute or difference to an adjudicator ‘at any time’. We have written elsewhere on payment provisions and adjudication.

As to the immediate question, a safe rule of thumb is if it sounds like a construction contract, it probably is one. Many contracts that don’t sound like them are covered too though, so it’s wise to err on the side of caution if you’re not sure.

The Construction Act defines a construction contract in section 104 as an agreement:

• For the carrying out of construction operations;
• For arranging for others to carry out construction operations (including sub-contracts); and
• For providing labour for the carrying out of construction operations.

And if that wasn’t wide enough, the Construction Act clarifies that this includes agreements for architectural, design or surveying work, and for advice on building, engineering, decoration or landscaping.

Key to this definition is the notion of ‘construction operations’. Section 105 of the Construction Act sets out a very precise and wide-ranging definition of this. It includes, in summary:

• The construction, alteration, repair, maintenance, and demolition of buildings or structures which form part of the land (whether permanently or not);
• The above activities in relation to works which form part of the land, such as walls, roadworks, power lines, runways, docks and harbours, railways, and industrial plant;
• The installation within buildings and structures of fittings, including MEP and communications systems;
• Cleaning of buildings and structures during their construction, alteration, repair, extension or restoration;
• Operations which are preparatory or integral to the above, such as site clearance, earth-moving, scaffolding, landscaping, and providing access; and
• Painting or decorating buildings and structures.

As can be seen then, most things that are even tangentially described as construction are caught by the Construction Act. However, to provide a little more complexity, some things are then explicitly excluded from the definition, such as drilling for gas, extracting minerals, and activities on sites where the primary activity is power generation. And importantly, contracts that are only for the manufacture or delivery to site of equipment, components and materials are also excluded, provided the contract does not provide for their installation – in a nutshell, supply only contracts are excluded.

While the definition is complex and contains some tricky drafting, it’s important to consider whether contracts are caught because parties might find themselves unknowingly contravening the requirements of the Construction Act otherwise. If both parties remain in blissful ignorance, that’s fine – but the danger comes when one party realises that payment provisions, for example, haven’t been complied with – and uses that advantage to set up a smash and grab adjudication.

As a final point, it’s sometimes thought that contracts for working on residential dwellings aren’t ‘construction contracts’ as defined by the Construction Act. That’s not strictly true – they may well be. But section 106 of the Construction Act provides the ‘residential occupier exemption’ – it means that where construction contracts relate to works on a dwelling which one of the parties occupies or intends to occupy as their residence, the provisions relating to adjudication and interim payments don’t apply. So the effect is the same – if working on your own house or someone else’s, the Construction Act probably doesn’t apply.

This is a complicated area and a real potential trap for the unwary – although equally, a potential advantage for savvy parties. If you’re in any doubt as to whether you have a construction contract, get in touch and we can advise on whether you do, and how you might be able to use that to your advantage.