There is little doubt that the Housing Grants, Construction and Regeneration Act 1996 has been successful in changing for the better the way payments are administered and in resolving early and effectively many disputes. Some amendments to the Act are necessary, in particular to prevent contract terms which allow costs to be used to stifle access to adjudication, and to plug the loopholes found to circumvent the illegality of pay when paid.

One aspect which does require amendment is the scope of the Act. It applies only to part of the construction industry. It is time for the Act to be effective in all types of construction activity. In the meantime the decisions of the courts show that judges, using the tool of interpretation, are keen not to limit the application of the Act. A recent case is Nottingham Community Housing Association Limited v Powerminster Limited (30 June 2000).

At the core of the Housing Grants, Construction and Regeneration Act 1996 is Section 105. It defines the type of work and therefore the sector of construction encompassed by the Act. Section 105(1) defines those construction operations to which the Act applies and Section 105(2) defines those which are outside the Act. Each section is divided into sub-clauses and each has a description of a construction operation. The descriptions tend to overlap, describing the similar operations. This can cause difficulties in interpretation and indeed this difficulty was the issue in Powerminster.

Powerminster was engaged by Nottingham to carry out an annual service on each gas appliance in Nottingham’s properties, and to supply a responsive repair and breakdown service. The gas appliances to be serviced were gas central heating systems, gas fires and gas cookers. Powerminster submitted various invoices, but Nottingham refused to pay on the basis that it considered it had substantial counterclaims. Powerminster gave notice of adjudication for non-payment of invoices. Nottingham’s case was that the contract was not a construction contract within the meaning of the Act. Powerminster sought a declaration to the contrary from the Courts.

Section 105(1)(a) of the Act defines construction operation to include the repair and maintenance, as well as alteration, extension, demolition or dismantling, of buildings or structures forming part of the land. Section 105(1)(c) defines construction operations to include the installation in any building or structure of fittings forming part of the land and gives a list of fittings including heating systems, lighting, power supply, drainage, sanitation and water supply.

Nottingham relied on Section 105(1)(c) to explain the meaning of Section 105(1)(a). Nottingham argued that the domestic gas appliances were not part of the buildings or structures as required by Section 105(a) of the Act, and so the work of repair was not a construction operation. Since Section 105(1)(c) referred only to installation, and not repair, of heating systems then this was the extent to which activities concerning heating were to be considered construction operations. The draftsman of the Act could easily have included maintenance and repair in the definition of construction operations in Section 105(1)(c), but he did not and so this clearly indicated that maintenance and repair of heating systems were not intended to be construction operations.

Nottingham also argued that the above interpretation gave some meaning to Section 105(1)(c). If repair and maintenance of heating systems was to be part of Section 105(1)(a), then Section 105(1)(c) would be redundant.

His Honour Mr Justice Dyson first considered the meaning of Section 105(1)(a) independently of Section 105(1)(c). He decided that Section 105(1)(a) did not distinguish between the various parts of a building, whether they are wall partitions or cladding panels for instance or the various systems listed in Section 105(1)(c). They were all vital parts of the building and in the case of the systems their proper function was necessary to make the building fit for habitation. Once the systems were installed they became part of the construction of the building. It was held that Parliament cannot have intended that the Act would apply only to the installation of such systems, and not their alteration, extension, demolition or dismantling. It was difficult to see any rational basis for the work of a heating or mechanical contractor carrying out substantial alterations to the heating or air-conditioning system of a large building, or the dismantling or demolition in all units on a large housing estate, to be outside the ambit of the Act. Why should Parliament have intended to exclude altering or dismantling, but have included installation? The same question arose in relation to repair and maintenance of heating and other systems installed in a building.

His Honour Mr Justice Dyson then considered Section 105(1)(c). If it was unclear whether heating systems installed in a building were included in Section 105(1)(a) then it would be clear that Parliament intended such systems to be governed exclusively by Section 105(1)(c). Since the meaning of Section 105(1)(a) was clear this argument did not succeed. Nor did the argument that the above interpretation made Section 105(1)(c) redundant. An argument for redundancy seldom carried any weight. Accordingly Powerminster obtained the declaration it sought, that the contract for repair and maintenance of gas appliances was a construction contract under the Act.

The decision highlights the difficulty in understanding the logic behind the scope of the Act. Why should certain sections of the industry be excluded? It is time for the exclusions in Section 105(2) to be re-examined in the light of the experience gained of the workings of the Act.