Payment for Construction Works
Payment for construction works is usually paid in instalments, however on very small projects alternative payment methods such as payment upfront or payment on completion may be utilised. Payment in construction is statutory protected under Part two of the Housing Grants, Construction and Regeneration Act 1996 (HGCRA). All construction contracts entered into before October 2011 must comply with the act and after October 2011, they must also comply in line with the amendments made in Part 8 of the Local Democracy, Economic Development and Construction Act 2009 (LDEDCA).
This act provides details of payment provisions and should a contract not include or is missing information on necessary payment provisions then the rules of The Scheme for Construction Contracts (England and Wales) Regulations 1998 (Amendment) (England) 2011 (The Scheme) will apply. If a project is due to take longer than 45 days then under Section 109 (1) of the (HGCRA), the contractor is entitled to instalments, stage payments or other periodic payments.
Section 110 (1) of the HGCRA provides information on the dates for payment and states that the contract should provide ‘an adequate mechanism for determining what payments become due under the contract’ (1996).
For a contract to be valid under the HGCRA the following items must be addressed and included: what amount is due and when, the final date for payment (interim and final), the payment notice outlining the amount due and how it is determined, the default notice and the pay less notice. They must also adhere to a strict time frame, which if not outlined in the contract, will follow the timings in the Scheme. The time frames will vary depending on the specified contract and can be amended for individual projects. The statutory dates between the due date and final date for payment in ‘The Scheme’ is 17 days.
Under the HGCRA, a payment notice must be provided for each payment in the contract that contains the notified sum which can be issued by a ‘specified person’ for example the Client, Architect or Contract Administrator and must be issued within 5 days of the due date. A pay less notice can be issued if the payer feels less than the notified sum should be paid or if the contractor requires less than that
outlined on their interim application for payment. However, the timing is critical, and it will not be valid if not served on time. The amended HGCRA states that the pay less notice must include the calculations to show the reductions and reasoning.
The contractor also has the right to suspend works under the Section 112 of the HGCRA if they are ‘not paid in full by the final date for payment and no effective notice to withhold payment has been given’. It should also be noted that ‘pay when paid’ clauses were removed from contracts as per Section 113 of the HGCRA and Paragraph 11 of the Scheme (2011).
It is important that all parties to a contract are aware of the provisions and the specified dates. If the contract does not state specific dates this will not exempt a party to paying as the dates strictly outlined in the Scheme in line with the relevant acts will be enforced.
Acknowledgement is given to Bradley Mason of Bradley Mason LLP
NOT LEGAL ADVICE: Information provided in this Blog, is for information purposes only. It is not and should not be taken as legal advice. You should not relay on or take or fail to take any action based upon this information. Never disregard taking legal advice or delay in seeking legal advice because of
something you have read in this blog, or on this website. Ian Randall is an Attorney & Counsellor at Law (NY), with 25 years of Corporate and Commercial experience in several jurisdictions. To see how Owllegal could help you, please visit; www.owllegal.org or email Ian Directly, his email address is ian@owllegal.org.
