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Lord Howie of Troon: My Lords, I am grateful to the noble Lord for his earlier kind remarks, to which I look forward with eager anticipation. But does he not realise--I am sure he does--that, in this matter, when the process industry (if there is such a thing, but let us use that shorthand) objects to certain elements in the Latham approach it is dealing with the relationship between the process industry as a technical client, which knows very much what it wants, and the main contractor. It is less interested in the relations between the main contractor and the chain of subcontractors which follows thereafter. It is this chain of subcontractors which we, or some of us at any rate, are interested in protecting, rather more than the immediate

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relationship between the technical client and the immediate main contractor. This is the big split that we have to consider very carefully.

Lord Lucas: My Lords, while not wishing to encourage the noble Lord, Lord Howie, to break with convention at Report stage, I will in this instance reply to the noble Lord and say that, yes, this is something which has been made very clear in the speeches today, of which we shall certainly take cognisance to the extent that we were not aware of it, although I suspect that we were very much aware of it. Nonetheless, there is discord within the process industry at the idea that this Bill should be applied to them. We want this Bill to work; we think that this Bill will work if it encompasses an industry which wants it to work and which goes at it with a will, and that industry is the construction industry.

The process industry is not happy with the Bill. To have them inside would introduce discord and, to our minds, would make it less likely that this whole process would work. However, the provisions are in the Bill to bring the process industry within it later if that consensus can be achieved. It requires only affirmative resolutions to do so, subject to the amendments which I hope will be made later today. That is our approach: to say that the process industry does not wish to be included now, we will leave it out for now, and it can come in later if it can be agreed that it wishes to come in. Indeed, when the construction industry has, as I hope it will, demonstrated how successful this process can be, I would think there will be a clamour from the process industry or, at least from its subcontractors, to come in. The process of including it will be a simple one.

Given our wish to exclude process engineering, there is a process of then drawing the line between construction and process engineering. As the noble Lord, Lord Ezra, said, that is an inexact one. We are still thinking hard as to how that should be done, and that will be reflected in much of what I say to later amendments, but there will always be boundaries; you cannot define any industry in a simple way. There are always boundaries, and I can think of boundaries between the construction and telecommunications industries which might be hard enough to draw, let alone between construction and process engineering. We will come back to the House on that issue, but I hope to give further enlightenment later. That will cover such matters as foundation and steelwork, where our view is very clearly that the process plant exclusion only covers plant, machinery and steelwork and would not cover all construction work on the site.

To turn to the amendments in particular, Amendment No. 111 from the noble Lord, Lord Williams, is very similar to one proposed in Committee. On that occasion my noble friend Lord Ferrers advised against it. He pointed out that activities either fell within the definition of construction operations, as specified in Clause 103, or they did not. Clause 103 is the test of what counts as construction, and we would not wish to muddy a situation by putting something in statute which requires parties to specify the construction elements of a particular contract.

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Of course parties would be quite free, for their own guidance, to distinguish between construction and non-construction activities in a contract. Perhaps one or more of the bodies that look after standard forms of contract might even decide that it was a good practice to do so. That would be all well and good. But if a contract omitted to mention some activity which the Bill regarded as a construction operation, there should be no question of it being "exempted" by the contract. At the end of the day it would be for an adjudicator, an arbitrator or the courts to decide which operations covered by the contract were caught by these provisions, and any contractor who wishes to make sure that everything that is happening is covered by the Bill may do so. Matters can be written into the Bill; they just cannot be excluded from it in the way it is written.

There is a risk with the amendment of the noble Lord, Lord Williams. Suppose we were to accept it, and a party bent on avoiding fair contract terms then failed to identify some task as a construction operation. He could then claim that, although the activity qualified as construction under Section 103 of the Act, because it had not been designated in the contract it was disqualified under Section 102 of the Act. We would then have created an alternative test for what constituted a construction activity and thereby a recipe for confusion, litigation and avoidance. I am sure that that is not what the noble Lord, Lord Williams, is trying to achieve.

The other amendments in the group cover some of the same ground; namely, the question of whether parties should be able to opt out of fair contract provisions by agreement. Their impact would be to make all the operations covered by Clause 103(2) construction operations for the purposes of the Bill. We have already heard that many noble Lords have difficulties with some of the operations on this list. I hope they will accept that, with Amendments Nos. 120, 121 and 137, when we reach them, I shall be going some way to address their difficulties. In Committee we also took a helpful step towards the inclusion of work on warehousing associated with the process industries. When we reach Amendment No. 136 in the name of the noble Lord, Lord Williams of Elvel, I hope noble Lords will see that we are again trying to be helpful and make the list of exclusions as lean and precise as possible.

Nevertheless, there are some operations which are clearly not construction operations and where there was a good measure of agreement on that in Committee. I am thinking of examples such as drilling for oil and gas, mining, the assembly of process plant and machinery, nuclear processing, the production of bricks and blocks and works of a purely artistic nature. The effect of the amendments would be to include such operations if any party had a mind to do so. I cannot believe that that would be the right outcome. Around other items covered by Clause 103(2) we are still seeking to draw a line, and trying our hardest, with the assistance of noble Lords opposite, to make it the right line.

We do not believe, therefore, that it would be right to fudge the issue of defining the industry simply by lumping all the difficult areas together and allowing

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contracting parties to pick and choose whether or not they were covered by this legislation. That is something which the Bill itself must make clear. I hope therefore that noble Lords will not seek to press their amendments.

4 p.m.

Lord Williams of Elvel: My Lords, I am grateful to the Minister for his response. I am bound to say that I do not think that he has really understood the problem. The problem is that main contracts between main contractors and clients can be what they are. In the process industries these are what they are. They are governed by certain rules of the associations. The real problem is that where a main contract is concluded without any specification of how subcontractors or sub-subcontractors will operate, the subcontractors and the sub-subcontractors are left completely empty of reassurance.

We accept that the Government do not wish the process industries to be in the Bill. The noble Viscount, Lord Ullswater, expressed it quite clearly. We have come back with what I regard as being a sensible compromise. It is clear to me that the process industries have not achieved the required standards in all their contracting procedures, whatever PILG may say. At the level of employer main contractor, they may well be content. But between main contractor and subcontractor and between subcontractor and sub-subcontractor, if I may go down the chain, all is not well. It is our belief that the minimum standards in the Bill should apply down the line.

No one in your Lordships' House or in any other forum that I can imagine can define exactly where the interests of subcontractors and sub-subcontractors start and where they finish. Nevertheless, anyone taking on a subcontract from a main contract, which is what we are talking about, will be looking at the main contract and asking, "Do the provisions in the contract apply in the context of the Bill?". If they do, the subcontractors and the sub-subcontractors will be reassured. If they do not, that is a different competitive situation, with which people may or may not be happy.

This is not a party political issue. We really do believe that the Government have heard only one side of the debate and that we must find some kind of compromise to respond equally to the views of the supply side, if I may put it in that way, who are the subcontractors and the sub-subcontractors, and the demand side, who are mainly those who form the group called PILG who actually commission contracts. To do anything else would be to impose double standards on the industry.

It is perfectly honourable and honest to say that there is a grey area and that there is difficulty in defining where one thing starts and the other thing stops. I should have thought that the way to resolve that would be to put into the Bill a simple provision, in whatever terms the Government like, saying that this is an area where there is difficulty and that the way to resolve the difficulty is by allowing contracting parties to define in

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any contract which parts of the contract--and hence, flowing on, to the subcontract and the sub-subcontract--are in the ambit of the Bill and which are without the protection of the Bill. The noble Viscount, Lord Ullswater, made a good point in that originally we were hoping that the process industries in their entirety would be subject to the Bill. This is the compromise which I believe would meet the desire of your Lordships that the Bill should satisfy all elements in the industry, both process and construction.

Having said that, I see from the noble Lord that it probably has written on his brief "Resist" or "Do not listen". However, as we are at a late stage of the Bill, I think it is appropriate that I take the opinion of the House.

4.7 p.m.

On Question, Whether the said amendment (No. 111) shall be agreed to?

Their Lordships divided: Contents, 70; Not-Contents, 117.

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