It’s surprising how many companies are unaware that there are payment periods in a construction contract prescribed by law. The Construction Act 1996 requires every construction contract to include a payment regime that ensures the parties know what and when they will be paid.
Although one of the requirements is for interim payments, the Act is not prescriptive and allows the parties to decide for themselves what intervals they agree for their interim payments. This is usually monthly, reflected in most of the standard form contracts (e.g., JCT). Those intervals may be on a specific date each month (i.e., 30th) or may be calculated monthly. Often, it can be difficult (sometimes impossible) to work out the other various payment dates in a contract (i.e., due date, payment notice date, final date for payment, etc.), so I encourage my clients to agree and include a payment schedule setting out the details. It also comes in handy as a quick reference sheet. Now, this is where it gets really complicated. If the parties’ contract does not comply with the Act, the payment provisions contained in separate legislation, the Scheme for Construction Contracts 1998, will apply to varying degrees. This means that if the payment provisions in the contract fail to comply with the Act at all, the entire payment provisions of the Scheme will replace the provisions in the contract. However, if some of the provisions in the contract comply but others don’t, the non-compliant provisions will be replaced by the Scheme to be read with the compliant provisions. Confused? Knowing whether your contract complies with the Act, and if not, how the Scheme applies, in regard to payment is of vital importance if you want to know what and when you are going to be paid. Final thoughts One final point, you’ve probably heard of the term ‘smash and grab’ adjudication and wondered what it means. Basically, if a paying party fails to serve proper payment notices in relation to, for example, an interim payment application, the payee might be able to take advantage of the situation and seek immediate payment via adjudication. The adjudicator won’t look at the value of the application (which, if overvalued, may lead to a windfall for the payee), only whether the payer has served compliant notices. Of course, the application itself must have been issued properly to satisfy the requirements of what is called a ‘default payment notice’.
0 Comments
|
Dr. Andrew MilnerDBEnv, LLM, MSc, BSc, MRICS, MCIArb Archives
February 2023
Categories |