Construction & Engineering
Part 9 - setting up a business in the UK
Construction & Engineering projects under English law
Overseas construction companies planning to set up and do business in the UK need to be aware of the contracts used and the regulatory environment which underpins the Construction & Engineering sector.
Construction & Engineering is heavily regulated and the law is subject to regular updates. The sector embraces everything from traditional construction to precision engineering such as process plants and battery energy storage systems.
Standard form construction & engineering contracts
Contract networks in construction projects can be complex because they may involve contractors, sub-contractors, consultants, funders and others. In the UK, standard form contracts are commonly used although under English law parties are free to agree on the terms of contract they wish to use. Which standard form (or bespoke contract) is chosen depends on the needs of the parties and the specific project.
The two main publishers of standard form contracts are the Joint Contracts Tribunal (JCT) and Institution of Civil Engineers (ICE). The contracts published by these two institutions are frequently adopted throughout the sector.
JCT contracts are suited to traditional construction work and provide forms of standard, design and build, and minor works contracts among others.
The ICE produces the contract family known as NEC4. These contracts are mainly for civil engineering projects and are designed to facilitate effective management of the contract in real time. The NEC4 is very different to other contracts and requires proactive management of its processes.
Other standard forms are used in particular sectors. In process plant and energy projects the standard forms you can expect to see are likely to be from the MF/1 or FIDIC contract series.
Where a standard form contract is adopted, it is likely to be amended by bespoke clauses.
Our Construction & Engineering team has extensive experience in drafting and negotiating all types of construction and engineering contracts whether standard form based or bespoke.
Construction Act
Housing, Grants, Construction and Regeneration Act 1996 (as amended by the Local Democracy, Economic Development and Construction Act 2009). This Act, commonly referred to as the ‘Construction Act’, sets out a statutory framework regulating “construction contracts”.
This wide statutory definition covers contracts for the carrying out of “construction operations” – which include most types of construction and engineering works. There are relatively few exceptions.
Where parties enter into a “construction contract” the provisions of the Construction Act will apply and cannot be contracted out of.
There are two essential features of the Construction Act to be aware of: payment provisions and adjudication (see below).
Where a construction contract does not provide an adequate mechanism for payment which complies with the Construction Act, statutory payment provisions will be implied by law.
An adequate mechanism for payment is one where a party is entitled to be paid by instalments or periodic payments, provided that the duration of the contract work is specified or estimated to be more than 45 days.
The amounts and intervals of the instalments can be agreed between the parties. However, the Construction Act requires an adequate mechanism for determining what payments become due and when – including a final date for payment. If the paying party does not make payment by the final date for payment, and does not serve a valid pay less notice, the unpaid party may take steps to recover the payment and suspend performance of some or all of its obligations under the contract.
A payment under a construction contract cannot be conditional on payment from a third party. English law prohibits ‘pay when paid’ clauses.
Adjudication is a fast-track dispute resolution mechanism aimed at resolving Construction & Engineering disputes quickly and at limited cost. It seeks to prevent insolvencies where a party is unpaid and would otherwise have to litigate (which is costly and takes a relatively long time). Adjudication decisions are interim binding until decided in court – meaning adjudication is known as a “pay now, argue later” process. Adjudication is not limited to payment disputes.
The right to refer a dispute to adjudication is implied in all “construction contracts”. The adjudication provisions must be recorded in writing otherwise the statutory adjudication scheme will apply.
Adjudication procedure
The Construction Act gives parties a right to refer a dispute under a construction contract.
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