Help Getting Paid

The Housing Grants, Construction and Regeneration Act 1996 (amended October 2011) details a requirement for an “adequate mechanism” to be determined within all construction and engineering contracts relating to payment between the parties, below we provide a summary of the Acts requirements.

A word of warning: many contractors are manipulating the Acts details, amending durations generally in an attempt to play dirty tricks against the other party.

The Construction Act Payment Requirements

The Housing Grants, Construction and Regeneration Act 1996 (amended October 2011) requires the following provisions are to be included within said contracts:

  1. A“due date” for each payment
  2. A “final date” for each payment
  3. A “payment notice” to be given within 5 days of the due date, stating:
  4. The sum that the payer considers to be due, and 
  5. The basis on which that sum has been calculated
  6. If the payer changes his mind, disagrees with the served payment notice, or disagrees with the default payment notice (see Note below) he must serve a “pay less” notice to correct the amount due to the payee. The pay less notice must, like the payment notice state:
  7. The sum that the payer considers to be due, and 
  8. The basis on which that sum has been calculated

And the payless notice be served to the payee a certain number of days before the final date for payment. If the payer fails to issue a pay less notice to the payee within the agreed timescales and containing the correct information, then the sum stated in the payment notice or default payment notice (see Note below) is due to be payable to the payee on the final date for payment.

 

Note: Generally most contracts require the payee to start the payment process via the issue of a detailed application to the payer. This application will provide the payee’s proposed valuation of his works completed upto a certain date. On receipt of the application, the payer should then

issue a payment notice (as per the construction act requirements detailed above) back to the payee (providing the required information as detailed above). However if the payer does not issue a correct payment notice stating both the amount he considers to be due and the basis on which that sum has been calculated, then the payee can either assume that his application has become the default payment notice and shall become the amount due, or issue an official default payment notice to the payer to further crystallize the sum due. On the basis that the payer does not issue a pay less notice within the agreed time scales (and providing the required information as detailed above) then the amount due to the payee from the payer shall be as per the payee’s application or issued default payment notice.

If the Payer doesn't make payment in full as per the final agreed payment notice then the payee may issue an official suspension notice giving the payer 7 days to make payment, if the payer fails to make payment in full as per the agreed payment notice within this 7 days period then the payee has the right to suspend all works.

A few words of warning:

  1. Generally if the payer’s payment notice is inline with the above requirements but it is hugely reduced and at an unfair valuation, most contracts don't allow the payee to issue a suspension notice as the payer has complied with the Construction Act’s requirements. The process of revaluing the payment to a fair amount then falls under the dispute resolution clauses of the contract which typically are Adjudication claims.
  2. The standard duration of suspension is normally 7 days, however contracts can be amended to increase this duration so do not assume your suspension period is 7 days if you are working under a bespoke or amended contract. If your contracts have been amended you may find that these durations have increased, sometimes to long durations such as 28 days which would result in you having to continue to work for that period of time after you have served your suspension notice due to lack of payment by the payer. If you suspend your works prior to this agreed suspension period you may become liable for delays to the project increasing the chances of incurring LADs, delay claims, contra-charges, etc.

This article is for general information purposes only and should not be relied upon in any specific situation without appropriate advice. If you require advice or wish to discuss any of the issues raised in this article, please contact us.