Tue 12 Apr 2022

Construction: Frequently Asked Questions (Part 1)

1. What constitutes a “construction contract”?

A construction contract, in terms of the Housing Grants, Construction and Regeneration Act 1996 (“the Construction Act”), is an agreement with a person for:

  1. The carrying out of construction operations;
  2. Arranging for the carrying out of construction operations;
  3. Providing labour for the carrying out of construction operations.

The definition extends to include agreements with construction professionals to carry out associated works such as design or surveying work, as well as engineering, interior/exterior decoration or landscaping works relating to construction operations.

Works included within the definition of ‘construction operations’ are broadly defined under the Construction Act, as are those which are excluded. Some examples of excluded works include drilling for, or the extraction of, oil/natural gas and the extraction of minerals, in addition to contracts with residential occupiers.

2. Is a sub-contractor obliged to follow a main contractor's programme of works?

Many standard form contracts provide that a main contractor should produce a programme. However, it is not commonplace for a contract to expressly state that the programme must be followed. This is also true in relation to sub-contractors. A sub-contractor is usually not obliged to follow a main contractors programme of works unless expressly provided for in the sub-contract.

3. Can a contractor suspend performance for non-payment?

Where a contract is ‘included’ under the Construction Act, a contractor may suspend performance for non-payment of goods or services. In addition to the statutory right to suspend for non-payment, parties may also agree contract terms giving the right to suspend performance for other reasons, such as a failure to provide an agreed payment security.

It is worth noting, however, that the enactment of the Corporate Insolvency and Governance Act 2020 means that performance cannot be suspended for non-payment where the employer has entered a formal insolvency procedure.

4. Are ‘pay when paid’ clauses valid?

‘Pay when paid’ clauses allowed contractors to pass the risk of the paying party not being able to pay them down the contractual chain (e.g., the subcontractor's entitlement to payment became dependent on the contractor receiving payment from the employer).

Following the enactment of the Construction Act, ‘pay when paid’ clauses became limited in their effect to only situations where the third party further up the chain who is making the payment is insolvent.

Further information

The precise facts and circumstances of each case are important when considering many of the foregoing issues, so it is always important to involve your solicitor early in the process.

For any advice on the formation of your contract, whether included or excluded under the Construction Act, or alternatively for any advice in relation to dispute resolution, please feel free to get in touch with a member of our specialist Construction team.

This article was co-written by Joshua Grieveson, Trainee Solicitor.

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