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COMMONS AMENDMENTS

90

Clause 109, page 61, line 24, after 'provision' insert 'as is mentioned in subsection (1) or (1A)'.


91

Clause 110, page 61, line 28, at end insert--


'The notice mentioned in section 109(1A) may suffice as a notice of intention to withhold payment if it complies with the requirements of this section.'.

Lord Lucas: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 90 and 91, to which I have already spoken.

Moved, That the House do agree with the Commons in their Amendments Nos. 90 and 91.--(Lord Lucas.)

On Question, Motion agreed to.

COMMONS AMENDMENT

92

Clause 112, page 62, line 23, leave out 'purporting to make' and insert 'making'.

Lord Lucas: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 92.

Moved, That the House do agree with the Commons in their Amendment No. 92.--(Lord Lucas.)

AMENDMENT TO COMMONS AMENDMENT No. 92

92A

Line 1, after ("insert") insert (""which has the effect of").

Lord Chapple: My Lords, I beg to move Amendment No. 92A as an amendment to Commons Amendment No. 92.

The issue of pay-when-paid is fairly important, but is not very clearly understood owing to the fact that many mumbled words have been uttered. What does the phrase mean? It means that if you work for a client who works for a client, and he is not paid or payment is delayed, he passes the cost on to you. That causes a great many bankruptcies in small and medium-sized firms in the building industry. Admittedly, in the rest of the Bill before the House the Government attempt to remedy that problem; in other words, to put a stop to what amounts to the blackmail of such companies.

Had the original wording remained, I should have been satisfied and should not have moved an amendment. With these five words, I seek to restore to the Bill the original meaning. I hope the Government will think again about pursuing this course. I beg to move.

Moved, That Amendment No. 92A, as an amendment to Commons Amendment No. 92, be agreed to.--(Lord Chapple.)

Viscount Ullswater: My Lords, Commons Amendment No. 92 narrows the prohibition of conditional payment provisions to the making of straight pay-when-paid contract conditions ineffective. I

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understand that there was considerable discussion about this in the other place, especially when the Latham Report, in Recommendation 8.10, uses these words:


    "any attempt by a contractor to include a clause in a bespoke contract form with the effect of introducing "pay-when-paid" conditions should be explicitly declared unfair and invalid".
That is virtually the text of the amendment now moved by the noble Lord, Lord Chapple. I am glad that the other place had difficulty with "purporting to", because I found that equally difficult to interpret.

Payment under a construction contract is always going to be conditional on something. In most instances the work has to be certified by somebody before a payment can be made. What the Bill addresses is the practice of a main contractor claiming that it is able to withhold payment because it has not been paid as a result of the certificate, or not paid enough. However, Clause 112 is still only part of the matter. The parties to a construction contract must, under Clause 109 of the Bill, provide an adequate mechanism for determining what payments become due under the contract, and when; that is, payers must explain the timing and the amounts of the sums due. That may still include the event of a certificate being issued, but it must no longer rest upon the handing over of a sum of money further up the line.

I have been advised, like the noble Lord, Lord Chapple, that some parts of the construction industry are unhappy about the narrowing of the contract conditions to merely "pay-when-paid", and would certainly want to see more conditional payment terms being made ineffective. They are unhappy that the "adequate mechanism" will not be sufficiently strong to take up the recommendation in Latham that I quoted. This gives a wider interpretation to conditional payment provisions than the words in the Bill as originally drafted. As I have said before, the scheme for construction contracts cannot or should not be the first fallback position for any weakness in a construction contract; but it will be very important for the department to get the scheme right so that it can support the industry in a sensible way. There is now the new opportunity offered by the legislation to call in the adjudicator if there is a dispute.

Having said that, I wish to ask my noble friend Lord Lucas whether he understands that there is still a worry among the subcontractors and specialists in the industry that the sensible provisions in the Bill will and can be circumvented. If that is the case, could my noble friend give some comfort to those in the industry who are still worried by saying that if time proves that these concerns are justified, the Government will undertake to have another look at these conditional payment provisions? I believe that all noble Lords would want to see these sensible provisions work effectively. Therefore I am, perhaps reluctantly, prepared to support the government amendment, and to reject the amendment of the noble Lord, Lord Chapple.

Lord Howie of Troon: My Lords, a week or so ago I attended a dinner where a Government Minister, Mr. Roger Freeman, said that this Bill will introduce a statutory right of payment by instalments and a specified final date for payment for all construction contracts and

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outlaw the practice of pay-when-paid. His remarks were important. He presumably believed that the Bill outlawed the practice of pay-when-paid. I imagine that in drawing up their amendments in the other place the Government believed that they outlawed that practice. However, nobody else believes that. The Bill as it stands, with the proposed Commons amendments, does not outlaw the practice, regardless of what the Minister might say.

I give the Government credit for moving a long way in the right direction. However, for them to accept the amendment moved by the noble Lord, Lord Chapple, would be to move further in the right direction, and that would be very welcome.

Lord Lucas: My Lords, the noble Lord, Lord Chapple, has pressed us to reconsider an amendment to prohibit contractual conditions with the effect of pay-when-paid. We believe this is unnecessary, since we have banned pay-when-paid clauses, as we set out to do, and that to go any further would leave a degree of uncertainty in the effect of these provisions. If a provision in a contract has the effect of pay-when-paid, it is a matter of pay-when-paid. We do not see that the words in the amendment will add anything to the effectiveness of the Bill. They will merely cause confusion.

We have heard something about the apparent intention of the Latham Report on this matter. The concern that Sir Michael was asked to address was that the payment chain was becoming so extended that small construction companies at the bottom of the chain were having to wait months for their money. That was because of the pay-when-paid system, whereby payments made by a main contractor would await payment to them by the client. We believe that that is a well-understood concept and that the wording in this part of the Bill is sufficient to deal with it particularly when backed up, as my noble friend Lord Ullswater said, with requirements elsewhere in the Bill for an adequate payment mechanism.

Clearly, as time goes on, we shall be able to monitor the success of this legislation. In an industry where contracts are frequently very long, it might take us quite a while to be sure whether or not we have got matters right. If events show that we have missed the mark in significant ways, we will revisit the issue of fair contracts legislation and make the appropriate changes.

However, legislation should not be seen as an end in itself. The Bill is meant only to be a stepping-stone in the drive to build better relationships within the construction industry and to work towards the wider aims outlined by Sir Michael Latham in Constructing the Team.

I hope that in that context and with those assurances the noble Lord will feel able to withdraw his amendment.

Lord Chapple: My Lords, I beg leave to withdraw my amendment.

Amendment No. 92A, as an amendment to Commons Amendment No. 92, by leave, withdrawn.

On Question, Motion agreed to.

23 Jul 1996 : Column 1351

6.30 p.m.

COMMONS AMENDMENTS

93

Clause 113, page 63, line 22, at end insert--


'(5) Regulations under this section shall not be made unless a draft of them has been approved by resolution of each House of Parliament.'.
94

After Clause 115, insert the following new clause--

Crown application

'.--(1) This Part applies to a construction contract entered into by or on behalf of the Crown otherwise than by or on behalf of Her Majesty in her private capacity.
(2) This Part applies to a construction contract entered into on behalf of the Duchy of Cornwall notwithstanding any Crown interest.
(3) Where a construction contract is entered into by or on behalf of Her Majesty in right of the Duchy of Lancaster, Her Majesty shall be represented, for the purposes of any adjudication or other proceedings arising out of the contract by virtue of this Part, by the Chancellor of the Duchy or such person as he may appoint.
(4) Where a construction contract is entered into on behalf of the Duchy of Cornwall, the Duke of Cornwall or the possessor for the time being of the Duchy shall be represented, for the purposes of any adjudication or other proceedings arising out of the contract by virtue of this Part, by such person as he may appoint.'.

Lord Lucas: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 93 and 94, to which I have already spoken.

Moved, That the House do agree with the Commons in their Amendments Nos. 93 and 94.--(Lord Lucas.)

On Question, Motion agreed to.


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