The Business Contract Terms (Assignment of Receivables) Regulations 2018 and the construction industry

The Business Contract Terms (Assignment of Receivables) Regulations 2018 and the construction industry

Stephen Rockhill, partner in the construction and engineering team at Stevens & Bolton, considers what impact the Business Contract Terms (Assignment of Receivables) Regulations 2018 (the Regulations) could have on the construction industry if passed into law.

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What are the draft Regulations?

The Regulations were published on 6 July 2018 and approved by the House of Commons on 11 September 2018 (they are currently pending approval by the House of Lords). If passed, the Regulations will invalidate restrictions on assignments of receivables in certain types of contract. The Regulations nullify a term of a contract that either prohibits the assignment of a receivable (a right to future payments) under the contract, imposes a condition on or otherwise restricts the assignment. The Regulations also nullify the effect of any clauses that have the effect of preventing a party from ascertaining the value of the receivable and its enforceability.

The types of contract that are not subject to the Regulations are set out in regulation 4. There are several types that are not subject to the Regulations, but those of greatest interest to construction are likely to be:

  • contracts for financial services
  • contracts for land
  • contracts for the sale of shares or a business

These exclusions could potentially cover a myriad of construction related contracts—especially those relating to an interest in land.

There are also exclusions in regulation 3, which are dependent on the status of the supplier of the goods or services to which the right to receivables relate. Generally speaking, the Regulations will not apply if the supplier is a large enterprise or special purpose vehicle, although the Regulations go into some detail as to the types of enterprises that will not satisfy these two definitions.

How are the Regulations relevant to construction projects?

The Regulations apply to business contracts for the supply of goods, services

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