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If we trust the people, we must trust their judgment in being able to spot vexatious attempts at recall. Let us remember what happened in Winchester in 1997. It was the closest we have ever come to a recall ballot in this country. The seat having been lost by two votes, the result was challenged by the loser in the courts. In what was in effect a judicially sanctioned recall election, a majority of two was turned into a majority of more
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than 10,000. Anyone looking to trigger vexatious recall ballots against a good MP would quickly learn why recall ballots are rare, even in California. It is the knowledge that they are possible that makes recall ballots so effective.

I was delighted to hear the Prime Minister say in Brighton that he backed the idea of recall elections. I gather that the Secretary of State for Justice told "The World at One" today that he would like to see recall ballots included in a future party manifesto. Here is his opportunity to make good on those words and back this Bill.

Our party invented and developed the idea that laws ought to be passed by elected representatives. Parliamentary democracy is Britain's greatest export, our supreme contribution to the happiness of mankind. It shames me-as I know it does you, Mr. Speaker, and other honourable Members-that in this country, the home of the mother of Parliaments, we see the democratic process held in contempt, its practitioners despised. For the truth is that no one has yet come up with a better alternative. If we do not have parliamentary democracy, we are left with anarchy or fascism.

So I urge hon. Members to support my Bill today, as a first step towards restoring the authority, legitimacy and standing of this House Let today mark the nadir of the expenses crisis, the moment at which things began to improve. We can still turn that catastrophe into a victory if we use it to reform and strengthen the mechanisms of democratic accountability. My Bill would restore purpose to the ballot box, dignity to the legislature and honour to the political process, and I commend it to the House.

Question put and agreed to.


That Mr. Douglas Carswell, Mr. Graham Allen, Mr. David Drew, Norman Lamb, Jo Swinson and Norman Baker present the Bill.

Mr. Douglas Carswell accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 16 October and to be printed (Bill 148).

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Local Democracy, Economic Development and Construction Bill [ Lords]

Consideration of Bill, as amended in the Public Bill Committee

New Clause 12

Application of construction contracts legislation

'(1) The Housing Grants, Construction and Regeneration Act 1996 (c. 53) is amended as follows.

(2) In section 106 (provisions not applicable to contract with residential occupiers), in subsection (1), omit paragraph (b) and the preceding "or".

(3) After that section insert-

"106A Power to disapply provisions of this Part

(1) The Secretary of State may by order provide that any or all of the provisions of this Part, so far as extending to England and Wales, shall not apply to any description of construction contract relating to the carrying out of construction operations (not being operations in Wales) which is specified in the order.

(2) The Welsh Ministers may by order provide that any or all of the provisions of this Part, so far as extending to England and Wales, shall not apply to any description of construction contract relating to the carrying out of construction operations in Wales which is specified in the order.

(3) The Scottish Ministers may by order provide that any or all of the provisions of this Part, so far as extending to Scotland, shall not apply to any description of construction contract which is specified in the order.

(4) An order under this section shall not be made unless a draft of it has been laid before and approved by resolution of-

(a) in the case of an order under subsection (1), each House of Parliament;

(b) in the case of an order under subsection (2), the National Assembly for Wales;

(c) in the case of an order under subsection (3), the Scottish Parliament."

(4) In section 146 (orders etc)-

(a) in subsection (2), for "Secretary of State" substitute "the authority making them";

(b) in subsection (3)(a), after "106(4)" insert ", 106A".'.- (Ms Winterton.)

Brought up, and read the First time.

3.49 pm

The Minister for Regional Economic Development and Co-ordination (Ms Rosie Winterton): I beg to move, That the clause be read a Second time.

Mr. Speaker: With this it will be convenient to discuss the following:

New clause 3- Insolvency protection-

'(1) The Housing Grants, Construction and Regeneration Act 1996 (c.53) is amended as follows.

(2) After section 113 insert-

"113A Insolvency protection

(1) A party to a construction contract may at any time request the other party to provide adequate security including bank guarantees and bonds in respect of payments of the contract price, including the price of any varied or additional works.

(2) Where a party fails to provide the adequate security as requested under subsection (1), the party making the request has the right to suspend any or all of his obligations under the construction contract with the party in default.

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(3) The right may not be exercised without first giving to the party in default at least seven days' notice of intention to suspend performance, stating that performance will be suspended unless, in the meantime, the security requested under subsection (1) is provided.

(4) The right to suspend performance ceases when the party in the default makes available the security requested under subsection (1).

(5) The consequences of the exercise of the right of the suspension under subsection (2) are as set out in subsections (3A) and (4) in section 112."'.

New clause 5- Prohibition of conditional payment provisions-

'(1) The Housing Grants, Construction and Regeneration Act 1996 (c. 53) is amended as follows.

(2) Section 113 is omitted.'.

New clause 7- Right to refer disputes to adjudication and conduct of the adjudication-

'In the Housing Grants, Construction and Regeneration Act 1996 (c. 53), for section 108 (right to refer disputes to adjudication) substitute-

"108 Right to refer disputes to adjudication and conduct of the adjudication

(1) A party to a construction contract has the right to refer a dispute arising under the contract for adjudication.

(2) For this purpose "disputes" includes any difference.

(3) The adjudication shall be conducted solely in accordance with the adjudication provisions of the Scheme for Construction Contracts.

(4) Any contractual provision between the parties to a construction contract which adds to, omits, varies or excludes the provisions of the Scheme is ineffective.

(5) It is immaterial whether or not the contractual provision is contained in the construction contract.'.

Government amendments 21 and 22.

Amendment 1, in clause 137, page 82, line 13, at end insert-

'( ) In the absence of an agreement under subsection (1) the adjudicator shall be entitled to the payment of such reasonable amount as he may determine by way of fees and expenses reasonably incurred by him.

( ) The parties shall be jointly and severally liable for any sum which remains outstanding following the making of any determination on how the payment shall be apportioned.'.

Amendment 5, in clause 138, page 82, line 24, at end insert-

'(c) the issue of any notice, certificate, the making of any decision or on the occurrence of any event under another contract.'.

Amendment 6, page 82, line 25], leave out 'do not'.

Amendment 7, page 82, line 26, leave out '(but see section 113)'.

Amendment 20, in clause 139, page 83, leave out line 8 to 10.

Amendment 9, in page 83, leave out lines 14 to 30 and insert-

'(2) A notice complies with this subsection if it specifies-

(a) the sum that the payee considers to be or to have been due at the payment due date in respect of the payment, and

(b) the basis on which that sum is calculated.'.

Amendment 10, in page 83, leave out from line 41 to line 23 on page 84.

Amendment 11, in clause 140, page 84, line 31, leave out from beginning to line 46 on page 85 and insert-

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'(2) For the purposes of this section , the "notified sum" in relation to any payment provided for by a construction contract means the amount specified in the notice complying with section 110A(2).

(3) Not later than 14 days after the payment due date the payer or a specified person may in accordance with this section give to the payee a notice of the payer's intention to pay less than notified sum.

(4) A notice under subsection (3) must specify-

(a) the sum that the payer considers to be due on the date the notice is served, and

(b) the basis on which that sum is calculated, and

(c) the precise reasons that justify the difference between the notified sum referred to in subsection (1) and the sum in a notice issued under subsection (3).

(5) A notice under subsection (3) may not be given before the notice by reference to which the notified sum is determined.

(6) Where a notice is given under subsection (3), subsection (1) applies only in respect of the sum specified pursuant to subsection (4)(a).

(7) Subsection (8) applies where in respect of a payment a notice under subsection (3) is given in accordance with this section, but on the matter being referred to adjudication the adjudicator decides that more than the sum specified in the notice should be paid.

(8) In a case where this subsection applies, the decision of the adjudicator referred to in subsection (7) shall be construed as requiring payment of the additional amount not later than-

(a) seven days from the date of the decision, or

(b) the date which, apart from the notice, would have been the final date for payment,

whichever is the later.

(9) Any contractual provision between the parties to a construction contract which seeks to exclude or oust the provisions of this section is ineffective. It is immaterial whether or not the contractual provision is contained in the construction contract.'.

Amendment 16, in page 85, leave out lines 39 and 40.

Government amendment 23.

Ms Winterton: New clause 12 addresses the Secretary of State's power to disapply the operation of part 2 of the Housing Grants, Construction and Regeneration Act 1996 from certain types of construction contracts. I am grateful to the Opposition, who have had discussions about the need for the amendments, for which I thank them. While the Bill has been going through Parliament, we have been approached by a number of stakeholders from the industry and its customers concerned about the nature of the Secretary of State's power to exclude contracts from the provisions of the 1996 Act. At the moment, that Act contains an all-or-nothing power-in other words, the Secretary of State can disapply from certain types of contract all the provisions in part 2 of that Act. We would like to substitute a new power enabling the Secretary of State to disapply any-not necessarily all-of the provisions in part 2. That approach would allow us to ensure that many of the valuable features of the 1996 Act, as amended by this Bill, continue to apply-for instance, the right to stage payments, the right to adjudication and the right to suspend performance in cases of non-payment-while giving us the flexibility to deal with specific issues of direct concern. The legislation could also respond proportionately to future contractual innovation. Amendment 23 simply references the repeal of the existing disapplication power, because we are replacing it with this provision.

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Amendments 21 and 22 concern pre-dispute agreements regarding adjudication costs. As alluded to in Committee, we reconsidered that issue. Clause 137 inserts new section 108A into the 1996 Act, preventing parties to construction contracts from entering into agreements before a dispute has arisen about who should pick up the costs of an adjudication. As a consequence of this broad and simple prohibition, pre-dispute agreements between parties, to the effect that an adjudicator can allocate fees and expenses as part of his decision, will also be caught. Allowing the parties to agree in their construction contract that the adjudicator has this power is current good practice, which we would like to preserve. Amendment 22 achieves that by carving out such agreements from the general prohibition.

Hon. Members raised a number of issues and tabled further amendments concerning the construction contract provision that directly reflect the points raised during previous stages of the Bill. The first issue concerned the statutory payment notice framework and is the subject of amendments 9, 10, 20 and 11. The hon. Members for North Cornwall (Dan Rogerson) and for Falmouth and Camborne (Julia Goldsworthy) seek to introduce two changes, creating a situation in which only a payee can issue the statutory payment notice, and introducing a statutory period within which a notice amending the amount in the payment notice can be issued.

It might help if I set out what changes the Bill makes to the 1996 Act statutory payment framework. The framework is of particular interest to small firms in construction supply chains and has been a matter of much correspondence and debate. The Bill takes a number of steps to tighten up the statutory payment framework to ensure greater clarity and certainty of cash flow, and requires that the amount in the payment notice as, and if, revised, be paid on, or before, the final payment date-in other words, pay now and argue later. The 1996 Act did not achieve that.

If the parties agree in contract, the payee is allowed to issue the statutory payment notice under the 1996 Act. Under that Act, only the payer could issue the statutory notice. When the parties agree that the payer should issue the statutory notice and he fails to do so, we give the payee the right to issue the notice. The 1996 Act was silent on what might happen when the notice was not issued.

The changes address the failure of the 1996 Act's payment notice framework to determine what will be paid. There is broad agreement in the industry that the amendments have the effect of crystallising what will either be paid or in dispute at the final date for payment, which we think is an important step forward. However, today's amendments take that a step further. Under the 1996 Act only the payer can issue the statutory payment notice. The Bill removes that restriction and allows the payer, the payee or a third party to issue the notice. The change is permissive, allowing a broad range of commercial practices to continue unburdened by legislation, rather than adopting the more restrictive approach proposed in amendments 9, 10, 11 and 20.

Currently, some forms of contract provide, for instance, for an architect to certify the value of the work and issue the payment notice. It is wholly reasonable for an inexperienced customer of the industry who is commissioning a complex construction project-a large factory extension on a difficult site, for example-to
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require his or her architect to value the work and issue the statutory payment notice, rather than handing that right to his contractor.

Amendment 11 seeks the introduction of a statutory period within which a counter-notice can be issued. We considered that proposal and asked about it more widely around the industry. The general conclusion was that although the proposal might provide the payee with greater certainty about what would be paid, it would do so at the expense of extending payment periods and reducing the amount of cash flowing.

A number of issues have been raised in connection with insolvency and new clauses 3 and 5, as well as amendments 5, 6, 7 and 16. New clause 3 would enable firms working under construction contracts to demand security of the payments due to them. New clause 5 and amendments 5, 6 and 7 would remove the 1996 Act's insolvency exception to the prohibition of pay-when-paid clauses. Another effect of amendment 11 would be to remove the provision that we have included to deal with any uncertainty surrounding the Melville Dundas court decision.

All the proposals rest against the same core principle. That principle is simple and clear: the insolvency regime applies to all businesses, regardless of the sector in which they operate. Without that consistency across business, it is hard to see how the insolvency regime can operate in an equitable way. In their own way, each of the amendments seeks to create a different position for firms covered by the 1996 Act from those that are not. We feel that it would be wrong for legislation to distinguish between business sectors where there is an insolvency.

New clause 7, tabled by the hon. Member for Shrewsbury and Atcham (Daniel Kawczynski), applies to single mandatory adjudication schemes and would ensure that the statutory adjudication provisions applied to all construction contracts offered under the 1996 Act. The Act intentionally covers a wide range of contracts between very many types of organisations in construction supply chains. Whatever we introduce must work in a broad range of commercial relationships-for instance, a client's relationship with his or her architect or with the main contractor, as well as the main contractor's relationship with his or her subcontractor. Given this, we continue to believe that the flexibility for adjudication procedures inherent in the 1996 Act represents the right approach. I therefore ask hon. Members to withdraw their amendments, and to accept new clause 12 and amendments 21, 22 and 23.

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