One to watch for construction projects in the water sector…

On 12 May 2022 a new draft order entitled “The Construction Contracts (England) Exclusion Order 2022” was published by the government, which (if approved) is due to come into force as a statutory instrument on 1 October 2022. The purpose of the draft order is to create a new exclusion from the adjudication and payment provisions in Part II of the Housing Grants, Construction and Regeneration Act 1996 (the “Construction Act”).

This new exclusion will apply to contracts for the “delivery of a direct procurement for customers project”, which will predominantly be relevant to those carrying out construction operations in the water sector. The exclusion will apply to contracts where:

1. it contains a statement that it is a delivery of direct procurement for customers project;
2. one of the parties to the contract is a sewerage or water undertaker;
3. the construction operations are in respect of an infrastructure project designated by the Water Services Regulation Authority (Ofwat) as a direct procurement for customers project in accordance with the conditions of appointment of the sewerage or water undertaker; and
4. the payments made under the contract consist of regular payments that are determined in part by reference to the actual cost of the construction operations and become payable after at least one part of the construction operations is completed and capable of performing a sewerage or water service.

The draft Order will also remove the prohibition contained in s.110(1A) of the Construction Act, on pay-when-certified clauses and other conditional payment clauses, on subcontracts entered into by a sewage or water undertaker on these type of projects.

It will therefore be important for those involved in projects of this kind to keep an eye on the progress of this draft legislation, and to take additional care with the drafting of payment and dispute resolution provisions because, from October, there will no longer be a safety net provided by the Scheme for Construction Contracts for this type of contact.

This update was written by Andy Sheppard

The Construction Contracts (England) Exclusion Order 2022

https://www.legislation.gov.uk/ukdsi/2022/9780348235043