For the change to White Diesel coming into effect as a result of the discontinuation of the discount rebate on Red, in terms of current projects, would the inclusion of X2 be a potential route to recovering some of these costs (within NEC Option A for example)? And If so, what would be the date that this event would be a known, the announcement from Government?
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X2, change in the law, is the appropriate vehicle for recovery and 1st April 2022, the date when the change in the law was implemented. So as long as your contract commenced prior to 1/4/22 then you will be entitled to recovery, unless you contract specifically excludes the event.
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An extract from a recent article may clarify the position, as follows;
The Hydrocarbon Oil Duties Act (‘HODA’) 1979 at Schedule 1 allowed for use of red diesel in vehicles referred to as ‘excepted vehicles’, many of which were used in the construction industry, including; ‘ … digging machine, mobile crane, works truck … (and) … road roller’. Amendments were made to Schedule 1 by an Order made in 2007 which added mobile pumping vehicles, road surfacing vehicles and tar sprayers as ‘excepted vehicles’.
Change in the law
Following an announcement in the 2020 Budget, provisions within the Finance Act (‘FA’) 2021 s102 restricted the use of rebated red diesel, setting out amendments to HODA 1979 within FA Schedule 21, which included omitting HODA 1979 Schedule 1 (as amended) and replacing it with a Schedule 1a ‘Excepted Machines’. The permitted use of red diesel now essentially relates to its use and purpose with the application to defined categories that include forestry, agriculture, community amateur sports club, travelling circus and private pleasure craft. Although ‘construction’ is not one of these defined categories there remains a possible ‘grey area’ where construction machinery is used for construction works that essentially form part of the purpose of a stated category.
Date of Change
The FA 2021 was enacted on 10 June 2021 although it is noted that this Act expressly stated that the requirements of Schedule 21 were coming into force on 1 April 2022, some 10 months later. From a legislative perspective the law changes once an Act receives royal assent. From a practical perspective however a change may not actually apply until it comes into force, although some changes may be required in advance of this date to effect the change. This raises the question as to when the law actually changes with application to option X2.
Although the effect of a law change may not apply until a stated later date, there is usually no formal procedure required to make this change except the passage of time. Consequently it is considered that the change in the law occurs when the formally recognised procedure for making such changes has been officially concluded, which for an Act of Parliament would be when it receives royal assent. This position may differ where secondary legislation, in the form of a commencement regulation, is required to effect a provision within an Act, although for the red diesel issue this is not the case.
Taking account of the above, any notification of a compensation event would correlate with the date that the FA 2021 received royal assent, which is 10 June 2021.
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I think this identifies something of a weakness in the current X clause, around timings.
The measure was announced on 11 March 2020 for implementation a year later. It was then delayed for Covid. There is then the 2021 Finance Act, which got Royal Assent on 11 June 2021, and the part about Red Diesel actually came into force on 1st April 2022.
So anyone who was paying attention knew this was coming for just over 2 years before it happened, and also knew exactly what the impact would be. In some cases clients were aware enough to deal with it at tender, but not always.
As a result, if you Tendered in May 2021 but didn’t include the impact of Red Diesel because it had not happened yet, and were then awarded the Contract in July 2021 you have no recourse. The law changed before the Contract Date. Those actions seem reasonable, and the outcome doesn’t seem fair.
Conversely, if you Tendered after 11 March 2020, did include the extra Tax from its original starting date, and were awarded the Contract in later 2020 you may well have been paid for a tax that got delayed (if in an Option A or B). And on top of that, you also have a compensation event. Again, I can’t say the tenderer acted unreasonably, and that also doesn’t seem fair.
I therefore wonder if X2 needs a revisit. Perhaps it should be clear that it is triggered by a law coming into force, rather than being made?
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As you have highlighted it may not be a straightforward process. It is a difficult issue as changing ‘the law’ often necessarily includes a period of time between when the change was made and when it comes into force, so that reasonable preparation can be made. This approach obviously applies to ‘red diesel’ and also other changes such as finance and taxation regulations.
I think there will always be contracts ‘caught’ in your scenarios, which is essentially a timing issue, fair or otherwise (to both parties).
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