It was with some alarm that I read the words of Mr Justice Coulson in his decision issued on the 20 February 2013 Westfield Construction Limited v Clive Lewis, where he asks whether it is time to do away with the S106 exception in the Construction Act. S106 is a provision that excludes the Act from construction contracts where the Employer intends to occupy the works as a residence. Mr Justice Coulson believes that such a change would allow all parties (including residential occupiers) to enjoy the benefit of adjudication.
I wonder how many residential occupiers when faced with an adjudication claim would share Mr Coulson’s view? It is very difficult to explain to an individual that although they are at Final Account stage, that defects have become apparent and that the valuation of the works has moved on, a contractor can adjudicate on a previous interim certificate and obtain an Award about something that happened months ago which has no basis in the current state of affairs on site. It is of little comfort to that home owner to be told that they can claw the money back in the Final Account, because in reality we all know that possession is 9/10ths of the law and once the cash has passed hands, recovering it is another matter.
Interim payments, adjudications, payment notices and pay less notices are a technical game. Developers and contractors know the rules of the game and even they get it wrong. The Construction Act is designed to solve the problem of well versed contractors and employers who are holding on to the life blood of any business, namely cash. Adjudication between a contractor and a residential occupier who has no knowledge of the industry or the unique nature of a construction contract, would be as fair as a boxing match between a professional and a first time amateur.
But what about the Contractor’s perspective? Contractors should be comforted by the fact that S106 has a limited application. The courts have interpreted it restrictively and it only applies to genuine residents who are procuring a new build or refurbishment of their home. S106 does not protect commercially astute developers masquerading as naïve occupiers. The courts have held that S106 does not apply to in the following situations:
- where more than one building is being constructed under the contract and only one is to be occupied,
- where a party to the contract is a company which is effectively a property developer,
- where a person is doing work to a building on their property, if they are not going to live in the building; and
- where the person intends to let the property when it is completed, even if he lived in it previously.
Contractors do need to be aware that the provisions of the Construction Act will not assist them when they carry out works for a person who intends to occupy the building. If the contractor requires interim payments and wishes to have the benefit of adjudication, he must make sure that his contract similar provisions to the Construction Act. It is usually the case that in a high value residential project, the occupier is advised by an architect or quantity surveyor and a standard form of contract has been chosen by the advisor. In that case, since the Employer has the benefit of the knowledge of professionals who know how to navigate the Construction Act, he or she may also benefit from adjudication.
What about professional advisors? Architects and quantity surveyors routinely adopt tried and tested standard forms. However, they should take heed when their client is a residential occupier. It is an interesting question whether a client could allege negligence if his/her advisor simply chose a standard form which incorporated the right to adjudicate without advising clearly regarding the consequences of agreeing to adjudication.
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