Under the Exclusion Order, any contracts for the delivery of a direct procurement for customers project will be excluded from Part II of the Construction Act relating to the regime for payment and adjudication. This will cover many contracts entered into by the water industry.
Direct procurement for customers ('DPC') involves a water or sewerage company competitively tendering for services for the delivery of large infrastructure projects, resulting in the competitive selection and appointment of a third-party provider. DPC will result in water companies competitively procuring more aspects of an infrastructure project, including financing for the project, which can have cost and other benefits.
A contract is a direct procurement for customers project if it contains all of the following conditions, and is similar to a Private Finance Initiative contract:
- a statement that it is such a contract;
- one of the parties to the contract is a sewerage or water undertaker;
- the construction operations are in respect of an infrastructure project that is designated by the Water Services Regulation Authority as a direct procurement for customers project in accordance with the conditions of appointment of the sewerage or water undertaker;
- the consideration due under the contract consists, at least in part, of regular payments that:
- are partially determined by reference to the actual cost of the construction operations; and
- become payable after at least one part of the construction operations is completed and capable of performing a sewerage or water service.
The Order also excludes section 110(1A) of the Construction Act (which prohibits pay when paid clauses) from applying where a party to such a contract enters into a subcontract.
At present, the Construction Act excludes various types of construction operations from the provisions of the Act, but the main one relevant to the Water Industry is the assembly, installation or demolition of plant, machinery or steelwork for the purposes of supporting or providing access to plant or machinery on a site where the primary activity is water or effluent treatment. Accordingly, the new Exclusion Order will broaden this exemption to also include relevant direct procurement for customers contracts.
The main impact for the water industry is that when entering into the contracts listed above, they will not have the automatic right to adjudicate and will need to resolve any disputes via court or other proceedings in the absence of an express adjudication provision. Parties to such contracts will also be free to agree their own payment provisions without these being subject to the payment provisions set out in the Act, for example, pay when paid clauses in subcontracts for DPC will not be prohibited.
For more information about the impact the Construction Contracts (England) Exclusion Order, please contact the Construction team.