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Earl Ferrers: We are saying that we do not want to legislate on this issue unless there is agreement within the industry. One of the reasons why there is no agreement is that the industry, which is much concerned with cash flow, will find that deflecting some of its funds into a trust fund will exacerbate the problems of financial viability within the industry. We would not wish to see that happen.

Conditions may change; an industry may find this a good thing to do. But to remove willingly, by legislation, certain sums which are applicable to various contractors and to put them to one side exacerbates rather than ameliorates the problems of the industry.

Lord Williams of Elvel: I understand those arguments. However, the noble Earl put forward a further argument about the ranking of creditors. I understand about the ranking of creditors. If I understood the Minister correctly, he said that if trust fund arrangements were agreed certain funds would be put aside to the disadvantage of other creditors. That means that the Government are not prepared to see a trust fund arrangement even if industry were to agree. As I understood it, that is what the noble Earl said. I may have got it wrong.

Earl Ferrers: I do not believe that the noble Lord is far wrong. There are the Insolvency Act procedures. If a firm goes bust, the Insolvency Act procedures work. If one has ring-fenced a sum of money, other people would be disadvantaged.

Lord Williams of Elvel: I know all about that. To get it absolutely clear, the Government do not want to

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disturb the procedure of insolvency legislation. We have to conclude that even if--it is unlikely--the industry on all sides were to agree that trust funds were necessary, the Government would say, "No, we cannot accept on the basis of the Insolvency Act". I fully understand. I am now clear on the subject, but I wished to have that completely and clearly on the record.

Earl Ferrers: The noble Lord keeps saying that he quite understands everything I say; I am so glad he does. He is correct that if all the industry were to say, "Yes, we want this", the Government would still have very grave reservations about introducing the provision.

Lord Williams of Elvel: I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 107 [Dates for payment]:

Baroness Hamwee moved Amendment No. 172:

Page 61, line 17, leave out ("an adequate") and insert ("a").

The noble Baroness said: The amendment is grouped with Amendment No. 173. Amendment No. 172 seeks to delete the description "adequate" from the mechanism for determining payment. What is the test for determining whether the mechanism is adequate? Is it an objective test? If the parties agree that the mechanism is adequate, why does it have to be described as adequate? It would merely be an agreed mechanism. Does some third party determine that the mechanism is adequate or inadequate? To the extent that that third party considers it inadequate, will he impose the provisions of the scheme? I seek to ask how the mechanism will work in practice. I beg to move.

Lord Howie of Troon: Amendment No. 173 is grouped with Amendment No. 172 and deals with the issue of adequate mechanism. The Bill gives no description of either adequacy or mechanism. My Amendment No. 173 attempts to remedy that defect in the Bill.

The mechanism relates to the amount of payment due and when it is due. Without defining the mechanism, the Bill lacks any objective standard that might be applied to it. Presumably the object of the clause is to ensure that at any time a party to a construction contract can establish a debt. Without such a debt being established, there is no prospect of legal action to recover outstanding moneys, and many of the proposed remedies set out in the Bill may prove ineffective.

It is essential that the constituent elements of an adequate mechanism should be set out in legislation and not left--perhaps to the scheme, who knows? Without these elements the avoidance of payment provisions will be a simple task for any unscrupulous contractor who seeks to delay payment. The Bill should include a description at least of the elements of an adequate mechanism. My amendment attempts to set out what those might reasonably be.

Earl Ferrers: The noble Baroness was concerned about what would be considered "adequate" in a payment mechanism. A payment mechanism will be considered

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adequate if it is successful in determining the amount of the payments and when they become due. Some idea of adequacy is important. If the mechanism failed in either of those tasks it would be considered inadequate, and the relevant procedures in the scheme for construction contracts would apply instead.

It would be unwise to be too prescriptive as to what constitutes adequacy. Compared to many of the payment arrangements about which we hear at the moment, simply clarifying the amount and the time of the payment is a big step forward. Other refinements would complicate matters and constrain contractual freedom.

Amendment No. 173 tabled by the noble Lord, Lord Howie, for example, spells the matter out in fairly good detail. However, it could be taken to read that the intervals between payment should all be the same length and that payment dates should be specified in the contract. Both of those run counter to many modern payment regimes. It would also require the payee to be notified of the amount due to him before the expiry of the payment interval, and that is far too tight for many standard contracts. Such a detailed description of adequacy would need to be perfectly right to be workable, and there is no perfect answer for all types of work and all types of contract. We want to see that payment is made, that the timing is known, and how much it will be.

Baroness Hamwee: I take the Minister's point about what the subject matter should be. But is he suggesting that under Clause 107(1), if the parties fail to agree, it means that the mechanism has been inadequate and therefore the scheme for construction contracts will kick in? That seemed to be the logic at the beginning of his reply to the amendment.

Earl Ferrers: I am not sure that I follow the noble Baroness quite as well as I should do. It may be that my intellectual mechanism has slowed up, too. Certainly, the parties are free to agree how long the period is to be between the date on which a sum becomes due and the final date of payment. That is in the Bill. As I understand it, the noble Baroness is concerned that, if the parties do not agree on that, this provision should operate. I believe that is so. The whole purpose of a contract is that it should include what payments are to be made and when they will be made--on the first of the month, every two months, or whatever it may be, and that people should be notified in advance of the sums of money they can expect. If the contract does not apply that provision, and if there were a dispute, this part of the Bill could come into operation.

Baroness Hamwee: The Minister is making my argument for me, which means that what we are talking about is a mechanism rather than an "adequate" mechanism. I am still unclear as to how one can judge whether it is "adequate". It seems to me to be almost irrelevant. Either it is a mechanism or it is not. I shall not press the matter further at the moment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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Lord Howie of Troon had given notice of his intention to move Amendment No. 173:

Page 61, leave out lines 21 and 22 and insert--
("(1A) The constituent elements of an adequate mechanism as set out in sub-section (1)(a) above are as follows--
(a) construction contracts shall specify the payment interval;
(b) the payment interval shall commence when any work under the contract commences;
(c) the due date for payment shall be the date of expiry of the payment interval;
(d) the final date for payment shall be stated in the construction contract; and
(e) contracting parties shall be advised in writing by the due date of the amount and the basis of the assessment of the payment to be made to them.").

The noble Lord said: The noble Earl, Lord Ferrers, may be correct in saying that Amendment No. 173 is prescriptive. So it is; that was the idea. I can see that he may not want it in the Bill. The Bill merely says an "adequate" mechanism. That is a fairly flimsy way of legislating. It refers to the scheme, and if the noble Earl remembers, we spoke a little earlier about the payment part of the scheme, which seems to have been forgotten.

The payment part of the scheme is also flimsy. It is just feasible that the payment part of the scheme may not be thought adequate by some pettifogging Scots lawyer. A little further thought must be given to this part of the Bill. I do not intend to press the amendment and I shall not move it.

[Amendment No. 173 not moved.]

Clause 107 agreed to.

Clause 108 [Notice of intention to withhold payment]:

Lord Howie of Troon moved Amendment No. 174:

Page 61, line 40, leave out ("award") and insert ("decision of the adjudicator").

The noble Lord said: Amendments Nos. 174 and 175 are small amendments but they are quite clear as to their meaning, and I hope that they will be acceptable.

The amendments are identical and both leave out the word "award". That is a term applied to an award by an arbitrator. Instead, the amendments insert "decision of the adjudicator". That clarifies the distinction between arbitration and adjudication which bedevils this part of the Bill and has caused some unseemly discussion in this Chamber. I hope the Minister will accept these simple and direct amendments. I beg to move.

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