HGCR Act 1996 - The Definition of Construction Contract

© Daniel Atkinson 2001 29 September 2001 Revised 17/01/02

SUMMARY

The term “construction contract” is defined in the Act. Although commonly thought to exclude all construction related to the process industry, this is not the case.

The intention of the Act was to cover most of the construction industry but to exclude some parts. The difficulty has been in identifying the exact scope of the Act since the terms adopted in the Act to describe construction are not precisely defined.

It is suggested therefore that “construction contract” means what it says — that there must be an enforceable contract.

Provisions of the Act

The main provisions of the HGCR Act Part II are as follows:

• Section 108: Adjudication
• Section 109 Payment
• Section 110
• Section 111: Withholding Payment - Set off.
• Section 112: Suspension for non-payment.
• Section 113: Pay when Paid.

Each of the above sections apply only to "Construction Contracts", so it is necessary to examine the meaning of this defined term which is to be found in Section 104 of the Act Part II.

1  Section 104(1)

Section 104(1) of the Act defines a "construction contract" as an agreement

1. to carry out construction operations;
2. arranging for the carrying out construction operations by others under a subcontract or otherwise;
3. providing one's own labour or the labour of others for the carrying out of construction operations.

2  Agreement/Contract

It is clear from Section 104(1) that "construction contract" is an "agreement" with a person. However "agreement" is only one of the essential ingredients of an enforceable contract, the others being consideration and an intention to create legal relations. It needs to be considered therefore whether it is possible that there may be an agreement for the purposes of the Act but not for the purposes of a contract. A letter of intent for instance may be acted upon and constitute an agreement to carry out certain works, but may not give rise to a contract.

Is it intended that claims in restitution for quantum meruit, should be caught by the Act? If contracts are unenforceable due to uncertainty, does the Act still apply?

There are indications in the Act, that its provisions only apply to enforceable contracts. The term "construction contract" itself suggest this. Section 108(1) which refers to adjudication refers to "disputes under the contract" which to have any legal meaning must refer to contractual rights. Section 114(4) which refers to the Scheme for Construction Contracts, states that they have effect as "implied terms of the contract concerned", where there is a default of contractual provisions agreed by the parties. The assumption is that there is an enforceable contract, and this is the only practical meaning if implication of terms are to have any legal effect.

It is suggested therefore that "construction contract" means what it says — that there must be an enforceable contract. The Act does not apply to:

• claims in restitution where there is no contract; and
• contracts unenforceable due to uncertainty.

This interpretation is given some weight by the decision in The Atlas Ceiling & Partition Co Ltd v Crowngate Estates (Cheltenham) Ltd (2000) TCC, where the date of entering into the agreement for the purposes of the Act was the not the date when the standard form was signed, but the later date when there was the intention to create legal relations.

3  Section 104(2)

Section 104(2) of the Act provides that a reference to a construction contract also includes agreements to do architectural, design or surveying work and to provide advice on building, engineering, interior or exterior decoration or the laying out of landscaping, in relation to construction operations.

4  Caselaw

Three cases deal with issues relating to the extent of construction contracts covered by the Act. The first is in relation to Section 104(2) of the Act. The second demonstrates the general issue of properly identifying the contracting parties.  The third case deals with novation agreements.

In Fence Gate Limited v James R Knowles Limited (2001) TCC it was held that providing factual evidence at an arbitration or assisting a party at an arbitration were not themselves construction operations as defined by Section 105. It did not follow however that they were not activities “in relation to construction operations” for the purposes of Section 104(2).

The giving of evidence by an architect, designer or surveyor at an arbitration did not fall within the words of Section 104(2)(a). It was not the “doing” of architectural designing or surveying work itself. Reporting back the result of a survey might be an essential part of surveying services and included in the “doing” of the work, but giving factual evidence at an arbitration or court of what was found was a significantly different activity. A witness of fact stated what he had seen or done for the purpose not of assisting or advising the client but to inform the Tribunal. Any relevant work has been carried out before the evidence is given. The giving of factual evidence in connection with a dispute is an activity which is additional to the survey itself and is not an incident of the survey.

Likewise, assisting at an arbitration was not the same thing as providing advice on building or engineering. Any advice will be advice in relation to how the arbitration should be conducted. It is not advice on or about the construction operations themselves but rather advice or the provision of information in relation to the conduct of the arbitration.

The words in Section 104(2) did not extend to refer to or include advice or assistance as to how an arbitration should be conducted or to giving of factual evidence at an arbitration hearing. The fact that advice in a professional capacity had been given at an earlier stage did not convert assisting at an arbitration into the provision of advice on building or engineering.

The decision in Universal Music Operations Ltd v Flairnote Ltd (2000)TCC emphasises the importance of clearly identifying the contracting parties, and particularly whether a project manager contracts on his own behalf in a construction management arrangement, or whether he is acting as the agent of the employer in a more traditional arrangement.

In Yarm Road Limited v Costain Limited (2001) TCC the issue was whether a novation agreement was caught by the 1996 Act. The novation agreement was entered into after 1^st May 1998 but was in relation to the subcontract works in a subcontract entered into 1995. Yarm Road agreed to be responsible for all the subcontract works.