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On this page Introduction | The Act and the Scheme | Payment Dates | Payment Mechanism | Notices | Suspension of Work | Interest
There is little doubt that the most common type of construction dispute concerns payment. The non-paying party usually thinks it has a good reason; sometimes it doesn't. Whatever is the case, the Housing Grants, Construction and Regeneration Act 1996, contains provisions to speed up payment.
The Act introduces 'Due dates for payment, 'Final dates for payment', a right to Suspend work and 'Notices' concerning payment. The most important relate to Notices, but it is first necessary to clear up a few other matters.
The Act requires a construction contract to provide a minimum framework for payment. It is largely open to the parties to agree the provisions, provided there is certainty. To the extent that the contract doesn't comply, the Scheme applies. In contrast to the Adjudication provisions of the Act and Scheme, the payment provisions in the Scheme merely fill the gaps. Those parts of the contract, which comply with the Act, are retained.
The relevant provisions provided on this site are the Act sections 109 to 116and the Scheme Part II.
The Act requires that any construction contract must provide for interim payments, unless it is specified or agreed that the work will take less than 45 days. If there is no agreement, the Scheme provides payment in respect of each 28-day period, due on the later of 7 days after the end of the period or the making of a claim. This is the Due date.
The final payment becomes due on the later of 30 days after the completion of the work or the making of a claim. Similar provisions apply to contracts where there are no interim payments (because of the short contract period).
This is not the final payment, but the latest date for paying any amount, which has become due. The parties can agree any period, but if they don't, the Final date for payment is 17 days after the due date. This is important for a number of reasons, including the rights to stop work and seek payment by legal process.
The Act requires that every construction contract shall have an adequate mechanism for determining what payments become due and when. It seems rather basic, but the Scheme provides that if there is no mechanism the amount due is the value of the works. This is further defined as cost of the work plus an allowance for overhead and profit as allowed in the contract price.
The provisions requiring notices can be the most effective means of bringing a dispute to a head. There are two types:
Notices enable the party claiming money to know what they are due to be paid and why. It can crystallise any dispute. There seems to be no sanction on the paying party for not issuing the Notice specifying the amount of payment. However, if the paying party doesn't issue a Notice of intention withholding payment, it is affected in two ways.
If a dispute is referred to Adjudication, the paying party cannot rely on any matter, which it did not raise in an effective Notice of intention to withhold. An effective notice would be on time and properly detailed.
Secondly, a party not receiving full payment may stop work.
If any amount due under a construction contract is not paid in full by the final date for payment and there is no effective notice to withhold payment, the party due to receive payment may suspend its performance.
The receiving party must give the paying party seven days notice that it intends to stop work. Once it has stopped, it must restart as soon as the money is finally paid. The stoppage time is added to the time for completion.
A regular question from a client put out of its money is how much interest is due. In general, under the common law no interest is due if the breach is only a failure to pay on time. Financing charges to fund late payment must be pleaded and proved as Special Damages.
However, contracts often provide for the payment of interest on late payments and there is now a statutory remedy in the Late Payment of Commercial Debts (Interest) Act 1998.
The Act requires there to be either a 'substantial contractual remedy' or implies interest at 8% over base rate.
It has been introduced in stages and from 1st November 2000 applied only to small companies, defined as one with less than 50 employees averaged over the financial year, including part timers pro rata, contractors and associated companies.
Form 7th August 2002 the statutory rate of interest applies to all commercial debts regardless of the size of the company and includes Government Departments. In general, interest is payable from 30 days after the goods or services are supplied.
In addition the Scheme for Construction Contracts provides for the Adjudicator to include interest in his decision, having regard to contract terms. The Arbitration Act 1996 also allows interest to be awarded as justice dictates. The situation is thus not entirely straightforward, but recovery of interest is possible.