Are adjudication costs now recoverable under the late payment legislation? It might be safer to assume they are not, advises Michael Frisby, partner at Stevens & Bolton LLP
The costs of adjudication broadly fall into two categories. The first category is the fees charged by the adjudicator. An adjudicator will have jurisdiction to decide which party should ultimately bear all or part of those fees. The second category is the party’s own costs of the adjudication. These might include legal fees and expert fees. Whether or not these are recoverable will depend upon whether the adjudicator has the jurisdiction to award them. This will turn on whether or not the parties have agreed that the costs should be recoverable.
Following the amendment to the Construction Act in 2011, Section 108 A of the Construction Act now provides that any contractual provision concerning the allocation of costs between the parties relating to the adjudication of a dispute will only be enforceable if: the provision is made in writing, is contained in the construction contract and confers power on the adjudicator to allocate his fees and expenses as between the parties; or is made in writing after the notice of intention to refer to adjudication has been given.
The rationale of this amendment was to stop onerous costs provisions being placed in contracts which would deter a party from adjudicating. For example provisions that required one party to pay the costs, regardless of the outcome (known as a Tolent clause, taking its name from a case where such a provision was held to be enforceable) were therefore no longer allowed.
Late Payment of Commercial Debts (Interest) Act 1998
The Late Payment of Commercial Debts (Interest) Act 1998 (‘Late Payment Act’) is a piece of legislation that emanates from an EU directive. Essentially it applies to most business to business contracts for sale of goods and/or services and governs the time for payment and interest. It allows a creditor to claim interest and compensation in certain circumstances. That compensation could include the costs of recovering a debt.
The compensation entitlement arises under the Late Payment Act in the following circumstances. Where there is no contractual provision for interest, then the rate set under the Late Payment Act becomes due (currently 8% over base rate). If there is a contractual interest rate, but the rate set is not “a substantial remedy” then the statutory rate will instead apply. It arises as an implied term.
If interest arises, then a creditor is also entitled to claim compensation for late payment depending on the level of debt of £40 rising to £100 for a debt of more than £10,000. By section 2A of the Late Payment Act, if the reasonable costs of the creditor in recovering a debt are not met by the fixed sum, then it shall also be entitled to a sum equivalent to the difference between the fixed sum and those costs.
It has been argued that this provision entitles a party to claim the costs of pursuing a debt in adjudication. But is this right?
The Lulu decision
A recently published court decision in Lulu Construction Ltd –v– Mulalley & Co Limited [2016] EWHC 1852 (TCC) has been said to be authority for the proposition that adjudication costs are recoverable under the late payment legislation. However, that is not so.
The Lulu case was simply an application to enforce a decision of an adjudicator. The underlying facts were unusual. The adjudicator had made a decision that included granting debt recovery costs (i.e. the legal costs of the successful party in the adjudication) of £47,666.27 purportedly under the Late Payment Of Commercial Debts (Interest) Act 1998. The jurisdictional challenge arose from the fact that the claim for debt recovery costs was raised in the rejoinder for the first time. The Court decided that the issue of whether or not to award debt recovery costs was within the adjudicator’s jurisdiction on the basis that it was a point raised by the Respondent who was the successful party. As it was the Respondent’s point, it was not surprising it was not raised in the referral notice. Based on established case law the court held that it was open to any defendant to raise any defence to the claim when it is referred to adjudication and as such the adjudicator was acting within his jurisdiction and the decision was enforced.
It is important to realise that this judgment did not deal with the underlying question of whether the Late Payment Act applied and whether the adjudicator was right to decide that the costs of the adjudication could be awarded as debt recovery costs under Late Payment Act. Having decided that he had the jurisdiction to decide the point, the court did not need to go any further.
There is no decided case law on whether costs of adjudication can be recovered under the Late Payment Act.
Recoverability of costs in adjudication using the Late Payment Act
Section 108A of the Construction Act makes it very clear that to be enforceable, any contractual provision dealing with the recoverability of costs in adjudication must comply with the requirements of that section, as set out above. Put simply, an entitlement to claim costs as compensation under the Late Payment Legislation only operates as an implied term, it does not fulfil the requirements of S108A, most obviously because it is not in writing but it does not comply with the other elements either.
It should also be borne in mind that the late payment legislation only applies to debts. Adjudications are often over disputes about other issues that would not come within the definition of a debt.
Conclusion
Parties do often seek to recover all of their costs in adjudications and will continue to do so. However, I would counsel against any assumption that the late payment legislation entitles a party to seek the costs of pursuing a debt claim through adjudication.
Contactor Speller Metcalfe is looking for suppliers in southwest England with whom to team up on its construction projects.
Speller Metcalfe has a £55m pipeline of work across the southwest for 2016-2017, with £10m of it in the housing sector.
It is holding a ‘meet the buyer’ event on 1st December where potential suppliers will have the opportunity to meet managers and purchasers from the company.
Steve Speller, joint owner of Speller Metcalfe, said: “As we continue to win work in the southwest it is critical to business operations that we develop a local supply chain that values health and safety, quality and innovation. This event will bring together our buyers and local contractors to help build strong business relationships.”
The event, hosted by Constructionline, is free to attend and takes place from 08:30 to 12:30 at The Bristol Golf Club, Blackhorse Hill, Almondsbury BS10 7TP. Registration is not required – just turn up.
Tesco and other supermarket groups are reportedly in discussions with property developer Apex Airspace about building homes on top of the flat roofs of their buildings.
Apex Airspace specialises in buying the air rights above existing buildings and lifting factory-building modular housing units onto them.
The Sunday Telegraph quotes Tesco chief financial officer Alan Stewart hoping to generate £400m by developing housing on top of stores.
The plans would see some of its largest urban supermarkets becoming mini-Tesco villages, the report says. Tesco has identified 15 potential sites so far, mostly in London but one in Oxford.
The government has approved £369m of public money to fund a 10-year refurbishment of Buckingham Palace, on the basis of its importance as a tourist attraction.
Essential works include replacing electrical wiring, water pipes and the heating system, which date back to the 1950s.
The project, to start in April 2017, seeks to prevent a serious risk of fire, flood and damage to both the building and the Royal Collection of art belonging to the nation.
These works will be funded through a temporary increase in the Sovereign Grant from 15% to 25% of the Crown Estate’s profits for the duration of the 10 year works, the Royal Trustees said. Parliament will hold the Royal Household to account throughout the process to ensure maximum value for taxpayers’ money.
The phased programme will be sequenced wing-by-wing to enable the Palace to remain occupied and fully operational, and allow the Queen to carry on with her official duties for the country.
Technical assessments have established that there are a series of very old (over 60 years), fragile systems with a high risk of failure that need to be replaced as a matter of urgency over the next two years (2017-19). These include Vulcanised India Rubber electrical cabling, electrical panels, distribution boards, generators, boilers, drainage pipework and data systems. Most of the mechanical & electrical services and systems are over 40 years old (some are over 60 years old) and are degrading, creating significant risks. The boilers are more than 33 years old, and spare parts are difficult to source.
More than half a million people visit Buckingham Palace during its summer opening every year and millions more flock to its gates to see the Changing of the Guard. In addition, the Palace hosts more than 90,000 people every year, for a range of official events.
Chief secretary to the Treasury David Gauke said: “Tourists are drawn to this country because of our culture, heritage and royal legacy, and when they visit they spend billions of pounds and support thousands of jobs. We must ensure that the special architectural and historic nature of some of our greatest buildings are protected for future generations, therefore it is only right we ensure Buckingham Palace is fit for purpose.
“These urgent works have been properly costed and will ensure the Palace can continue its centuries-long tradition of being the working house of our monarch. We will ensure every penny spent achieves the greatest value for money.”
Buckingham Palace is also a working office and residential building for the royal family, as well as an international tourist attraction.
The total capital costs of the 10-year phased refit will be £369m, according to the Reservicing of Buckingham Palace Summary Report.
However, it will generate benefits of £139m over the 50-year extended lifespan of the Palace, making the net cost £230m, which equates to a £222m net present cost once inflation is taken into account.
The options appraisal report was written by a consortium including:
- WSP Parsons Brinckerhoff – project lead and engineer
- HOK – conservation architect and space utilisation planner
- Gleeds – cost adviser
- Berkshire Consultancy – project co-ordination
- Sir Robert McAlpine – construction adviser
- Accurro – IT, telecoms and controls engineer.
The Government is planning a new wave of 100,000 modular to help deal with the housing shortage, according to a new report.
A white paper which will be published next month will include measures encouraging banks to lend to off-site home builders, according to the Daily Telegraph.
Ministers have reportedlybeen impressed with construction speeds of the latest prefabs, with some erected on site in just 48 hours.
A government source told The Telegraph: “The first and most obvious advantage is speeding up the building of housing. There is pretty good evidence that if you did it at scale it is cheaper.”
House building has lagged behind targets for several years, with planning permission and a skills shortage cited as reasons for the delays.
The Communities Department hopes the measures will lead to 100,000 off-site manufactured home being built over this parliament.
Gavin Barwell, the housing minister, said: “Offsite construction could provide a huge opportunity to increase housing supply and we want to see more innovation like this emulated across the housebuilding sector.”
The Government is looking at two areas of potential support. Firstly, providing direct funding to help firms build new prefabs. Secondly, convincing risk-averse lenders to give out more loans.
Ministers have visited Accord Group, a housing association in the West Midlands, which claims it can produce a three-bedroom house from scratch in a day at its factory.
Pocket, a London-based firm building affordable flats for first-time buyers, has also been visited by Barwell and communities secretary Sajid Javid.
UK construction companies recorded a sustained expansion of overall business activity in October, led by another solid increase in residential work, according to the Markit/CIPS Construction Purchasing Managers’ Index.
At 52, the seasonally adjusted Index edged up from 52.3 in September and remained above the 50.0 no change threshold for the second month running.
The latest reading pointed to the fastest upturn in activity since March, although the rate of growth was only modest and still much softer than the average since the recovery began three-and-a-half years ago (57.3).
New order volumes picked up across the construction sector, but the rate of growth eased since September and remained weaker than seen prior to this summer. This contributed to a drop in business confidence regarding the year-ahead growth outlook, with the latest reading the second lowest since May 2013.
At the same time, input costs rose at one of the fastest rates seen over the past five years, which survey respondents widely linked to the weaker pound.
Housing activity remained the key growth driver across the construction sector in October. Latest data signalled a solid increase in residential building work, and the pace of expansion was only slightly weaker than September’s eight-month peak. There was also a stabilisation in commercial construction activity during October, while civil engineering decreased slightly and was the weakest performing broad category of activity.
New business growth was only moderate in October and still much weaker than seen during the first quarter of 2016. Some firms noted that Brexit-related uncertainty had continued to act as a brake on client confidence and resulted in delayed spending decisions. Nonetheless, construction companies reported a further upturn in their staffing levels and purchasing activity during the latest survey period.
Input prices increased at the second-fastest rate since July 2011 (exceeded only by the rise in costs reported this August). Anecdotal evidence suggested that suppliers had sought to pass on higher imported raw material prices. Some construction companies also pointed to greater transportation costs in October.
Looking ahead, the number of construction firms expecting a rise in business activity over the next 12 months (43%) continued to exceed those that forecast a reduction (14%). However, the latest reading was down markedly since September and the second-lowest since May 2013.
Tim Moore, senior economist at IHS Markit and author of the Markit/CIPS Construction PMI, said: “The UK construction sector has started the fourth quarter in a positive fashion, with the latest survey data revealing a moderate rebound from the downturn seen during the summer.
“Construction growth was dependent on a solid recovery in residential work, as civil engineering and commercial building struggled for momentum in October.
“While business activity has picked up since the third quarter, the recent phase of new order growth has been the weakest for three-and-a-half years.
“Survey respondents noted that Brexit-related uncertainty and concerns about the UK economic outlook had held back investment spending.”
The Construction Industry Training Board (CITB) has awarded a Liverpool business £450,000 of funding for a new project aimed at getting teachers and students excited about Building Information Modelling (BIM) technology.
The BIM4Education initiative aims to change the image of the industry among young people, their teachers and parents, and will educate teachers about the digital built environment and associated careers.
The 18-month project has been developed by a consortium led by the Neighbourhood Services Company (NSC) and has a total value of £640,985, of which CITB will invest £454,984 via its Flexible Fund.
The project’s three main strands are:
- Professional development for teachers with learning resources and support centred around BIM processes provided by the Universities of Heriot Watt, Liverpool John Moores, Salford, Westminster and the UK BIM Alliance.
- Two Regional Centres of Excellence to showcase BIM processes at St Ambrose Barlow RC High School in Salford and the Alt Valley Community Trust in Liverpool.
- Monthly built environment roadshows in schools across the UK in which construction ambassadors, education professionals, secondary school students and their parents will participate in a raft of activities all designed to increase the appeal of working in construction.
The initiative is the brainchild of Alison Watson, managing director of Class of Your Own (COYO). This year, Neighbourhood Services Company supported COYO and provided the momentum to develop the BIM4Education concept and turn her vision into a reality.
Alison Watson, Managing Director of Class of Your Own, said: “Teachers are hugely significant in the race for talent. The need to engage and excite young people about the rewards offered by a career in construction can only happen if the teacher – often the main influencer – is well informed, knowledgeable and well trained. Long term investment in education is paramount, and the BIM4Education initiative offers further genuine support for teachers through some of the most respected organisations in industry and academia.”
Geeta Nathan, head of economic analysis at CITB, said: “CITB is committed to getting young people, teachers and parents to think positively about careers in construction. This project is a great example of innovative thinking to get kids excited about the incredible career opportunities in Construction. By investing in BIM4Education we are taking a grass-roots approach to meeting the future demands of the industry by building up a strong, talented pipeline of Construction workers.”
Latest quarterly workload report form chartered surveyors indicates that construction workloads in the UK continue to rise, albeit at a slower rate than previously seen in the past three years.
The Royal Institution of Chartered Surveyors (RICS) quarterly survey of members finds that 19% more chartered surveyors reported that construction workloads in the UK had risen, rather than fallen this quarter. While this suggests growth, it is the lowest reading since Q2 2013.
‘Brexit uncertainty’ was blamed.
The Midlands remains the engine of growth in UK construction, RICS says, with 30% more respondents reporting a rise in activity. London and the southeast have seen growth levels ‘moderate significantly’, mainly due to the private commercial sector slowing.
Private housing saw the highest levels of growth compared to other construction sectors, with 27% more chartered surveyors reporting workloads had risen rather than fallen. In the private commercial sector, growth was unchanged from Q2.
In the infrastructure sector, 17% more contributors reported a rise rather than a fall in workloads and respondents expect the road and rail subsectors to be the drivers of growth over the coming 12 months. Meanwhile, activity in the public sector continues to underperform all others.
Looking further ahead, while respondents highlighted generally subdued growth over Q3 they are more optimistic about the year to come with 49% more respondents forecasting a rise in workloads rather than a fall. On average, contributors expect activity to rise by 2.5% over the next twelve months.
Expectations for employment growth have also improved with 35% more respondents forecasting a rise rather than a fall, up from 18% in Q2.
However, both workload and employment expectations are still lower than pre-Q2 levels and anecdotal evidence from respondents suggests that uncertainty relating of the UK’s future relationship with Europe is still causing them concern regarding their future workloads.
RICS UK head of policy Jeremy Blackburn said: “It seems that when it comes to private housing, we are indeed the builders. The government’s commitment to this critical sector has clearly had a positive impact on growth. However, what the figures mask, is the disparity between the kinds of properties that are being built. When the communities secretary publishes his housing white paper later this month, he must deliver a housing programme that benefits more than the just the fortunate few. We need to shift the rhetoric away from home ownership and encourage the building of affordable rental properties in the suburbs and our cities.”
Sport England, Lipton Rogers Developments and Quintain are the latest client organisations to join Build UK.
Build UK began life last year as a merger of the representative associations of the biggest and smallest contractors in the construction supply chain. By bringing in construction clients, it seeks to speak for the entire industry.
It has now signed up six client organisations in as many weeks, with Almacantar, Argent and Great Portland Estates being the first to join.
Sport England property director Charles Johnston said: “As a significant funder of contraction projects, it’s vital that we have certainty from our contractors. That’s why we’re engaging with the industry through Build UK. We want to build relationships so that we can get the very best outcomes for people when they play and enjoy sport.”
Peter Rogers, co-founder of Lipton Rogers Developments, said: “Build UK’s enthusiasm and drive to change the industry is infectious and I believe that they are the organisation with the ability to generate real and necessary change in the industry.”
Quintain construction director Matt Voyce said: “Working with Build UK will provide us with valuable insight into construction markets and also allow us to lead by example in continuing to improve practices.”
Build UK chief executive Suzannah Nichol said: “Build UK broke new ground when we brought the contracting supply chain together; today we are changing the face of the industry by bringing clients, main contractors and specialist contractors around the table for the first time as we continue to pioneer change.”
The government has finally declared its support for construction of a third runway at Heathrow Airport. But it wants more talk before there’s any action.
Prime minister Theresa May, who previously opposed Heathrow expansion, still believes more consultation is required before she can allow the project to go ahead. The scheme will now be taken forward in the form of a draft ‘national policy statement’ for consultation next year.
A start on actual construction work is still considered to be five years away, at least.
Building a new full length (3,500-metre) runway to the northwest of the current northern runway at Heathrow will require construction of a new (sixth) terminal, putting part of the M25 into a tunnel, moving a waste energy plant and knocking down 783 homes.
For many, the project is toxic. Therefore some £2.6bn is to be allocated to appeasing local opposition, including £700m for noise insulation for residents under flightpaths. There will also be a six-and-a-half hour ban on scheduled night flights.
Although this government, and the previous Conservative-led coalition before it, have been dithering over this decision for years, transport secretary Chris Grayling sought to dress up the announcement as a sign of decisiveness. “I am proud that after years of discussion and delay this government is taking decisive action to secure the UK’s place in the global aviation market – securing jobs and business opportunities for the next decade and beyond,” he said.
He added: “This is an important issue for the whole country. That is why the government’s preferred scheme will be subject to full and fair public consultation. Of course it is also hugely important for those living near the airport. That is why we have made clear that expansion will only be allowed to proceed on the basis of a world class package of compensation and mitigation worth up to £2.6bn, including community support, insulation, and respite from noise – balancing the benefits and the impacts of expansion.”
At £18.6bn, a third runway at Heathrow is the most expensive of the three options shortlisted by the Airports Commission but the one that it recommended in its final report last year as it offers the best economic return. According to the government it is a ‘fact’ (rather than an economic estimate calculated on the basis of a series of unporveable assumptions) that a thrid runway at Heathrow “will deliver economic benefits to passengers and the wider economy worth up to £61bn over 60 years” as well as “77,000 additional local jobs created by 2030”.
The alternative shortlisted options were a £13.5bn Heathrow Hub extended northern runway option and a £9.3bn second runway at Gatwick.
What now?
Heathrow expansion will be delivered through the planning process set down by the 2008 Planning Act and 2011 Localism Act. A draft national policy statement (NPS) setting out why the government believes this scheme is the right one will be published in the new year when the public will be consulted on the proposals. The government will set out the airport scheme it wants, along with supporting evidence, in the NPS. The public and parliament will be consulted and there will be a vote in the House of Commons. This will be followed by a planning application by the airport to the planning inspector who will take a view and advise government of his/her decision. Final sign off will be by the secretary of state for transport. Only after all that will construction actually start.
“It is highly unlikely that we’ll see any physical works commencing until at least 2021,” reckons Jonathan Stott, managing director of surveyors Gateley Hamer and a specialist in compulsory purchase. “There will be a vote by MPs, it’s very likely there will be a judicial review and a development consent order will be required.”
Footnote
Prime minster Theresa May, whose Maidenhead constituency is near to Heathrow, campaigned against expansion of the airport when her party was in opposition and the Labour government was promoting the scheme.
