Impact of legislation

To establish the payment mechanism under a construction contract you must determine whether or not the Housing Grants, Construction and Regeneration Act 1996 (HGCRA) applies, either in its original form or as amended by the Local Democracy, Economic Development and Construction Act 2009 (LDEDCA).

The provisions of Part II of the HGCRA apply if the contract in question is a ‘construction contract’, as defined under sections 104 and 105. Part II does not apply to construction contracts with a ‘residential occupier’, as defined under section 106. For construction contracts entered into before 1 October 2011 Part II only applies to those made in writing.

If the provisions of Part II of the HGCRA do not apply, the contract administrator should simply follow the payment terms of the contract. If they do apply, the contract administrator should consider whether the terms of the contract comply with the payment provisions under section 109 to section 113 of the relevant version of the HGCRA. If they do, the terms of the contract should be followed.

When the terms of the contract do not comply, the provisions of the Scheme for Construction Contracts (England and Wales) Regulations 1998, either in their original form or as amended by the Scheme for Construction Contracts (England and Wales) Regulations 1998 Amendment (England) Regulations 2011 should be followed.

Which version of the Act applies?

The date the contract was entered into determines whether the Housing Grants, Construction and Regeneration Act 1996 (HGCRA) applies to your contract or not. And, if it does, whether it applies in its original form or as amended by the Local Democracy, Economic Development and Construction Act 2009 (LDEDCA).

If the contract was entered into on or after 1 May 1998 but before 1 October 2011, the HGCRA and The Scheme will apply in their unamended form.

If the contract was entered into on or after 1 October 2011, the HGCRA and The Scheme will apply as amended by the LDEDCA.

The terms 'construction contract', 'in writing' and 'residential occupier' are defined in sections 104, 105, 106 and 107 of the HGCRA. The definitions of ‘construction contract’ and ‘residential occupier’ are not affected by the LDEDCA.

Stage payments

In contracts to which Part II of the HGCRA applies, whether in its original or amended form, section 109 provides that the contractor is entitled to payment by instalments, stage payments or other periodic payments unless the work is specified or agreed between the parties to be less than 45 days.

The parties are free to agree the amounts of the payments and the intervals at which or circumstances in which they will become due. If these matters are not agreed, the provisions of the Scheme apply.

Dates for payment

Under section 110 of the HGCRA, every construction contract to which Part II of the HGCRA applies must provide an adequate mechanism for determining what payments become due and when. Such contracts must also provide a final date for payment in relation to any sum which becomes due.

The parties are free to agree these matters, but if they do not, or if the terms of their agreement are not adequate for the purposes of HGCRA, the provisions of the Scheme apply.