Applications & Payments
Construction Subcontract Applications & Payment Provisions
Applications & Payment – Most standard forms of construction contract expressly provide for a Payment Application from the payee. This usually starts the payment process and should be submitted in strict accordance with the contract.
To ensure that a Payment Application is valid:
- Value the works on the date specified in the contract
- Submit your Payment Application within the deadline specified in your contract
- Set out the sum considered to be due and the basis of the calculation
- Include a summary sheet which breaks down the calculation for the amount considered to be due.
Applications & Payment – The Payment Application should also use the language of the contract, for example, if the contract refers to an “Interim Payment Application” then use the same title so the payer is in no doubt what you’re submitting.
Construction Subcontract Application & Payment Provisions
The first thing that Specialist Contractors, Trade Contractors and Subcontractors need to get their head around is the fact that there is a myriad of different ways in which construction and engineering subcontracts provide for interim applications and payment.
These can be broadly divided into the following categories;
- Standard Form Contracts i.e. those produced by recognised industry bodies e.g. JCT
- Non-standard or bespoke forms produced for and used by Contractors
In addition, we need to consider the application and payment provisions of contracts that are formed by exchange of correspondence or performance, or where a Purchase Order has been issued which may or may not contain payment provisions.
The Construction Act & Subcontract Interim Payment Provisions
The Housing Grants Construction and Regeneration Act 1996 as amended by the Local Democracy Economic Development and Construction Act 2009 applies to all “construction operations” as defined in the Act.
There are certain types of project to which the Act does not apply, and one such situation that a good many readers will encounter is where the contract is with a “residential occupier” the homeowner to you and me. Other situations where the Act does not apply include; supply only contracts, process industry and power generation sites. A full list of the types of project to which it does not apply are set out in the Act as follows;
(a) drilling for, or extraction of, oil or natural gas;
(b) extraction (whether by underground or surface working) of minerals; tunnelling or boring, or construction of underground works, for this purpose;
(c) assembly, installation or demolition of plant or machinery, or erection or demolition of steelworks for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is—
(i) nuclear processing, power generation, or water or effluent treatment, or
(ii) the production, transmission, processing or bulk storage (other than warehousing) of chemicals, pharmaceuticals, oil, gas, steel or food and drink;
(d) manufacture or delivery to site of—
(i) building or engineering components or equipment,
(ii) materials, plant or machinery, or
(iii) components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or for security or communications systems, except under a contract which also provides for their installation;
(e) the making, installation and repair of artistic works, being sculptures, murals and other works, which are wholly artistic in nature.
The Act and in particular, the 2011 amendments to the Act introduced some key rules about payment. Contracts that are subject to the Act are required to clearly establish two clear points in the payment process, and these are called the “Due Date” and the “Final Date for Payment”. It is unfortunate that in this context, the “Due Date” does not mean the date the money is due to be paid. That is determined by the “Final Date for Payment”, which is the last date by which payment must be made.
Where the Act applies, the contract must also provide for Payment Notices to be issued by the paying party within 5 days of the Due Date, and if such notices are not provided the Act imposes favourable default provisions.
In simple terms, if your contract requires you to submit applications for payment (and most do), then your application will become the default Payment Notice. Unfortunately, the Act also introduced the concept of the Pay Less Notice!
On the plus side, this means that in the absence of a Pay Less Notice, the sum due and payable is that set out in your application for payment. However, this favourable position is often taken away by the Contractors own terms or onerous amendments to the Standard Form contracts.
On the down-side, the dreaded Pay Less Notice is the Contractor’s opportunity, to make deductions from the sum he said he was going to pay you, or the sum in your default notice
Check Out Our “Payment Page” and our “Payment Under The Construction Act” Page
Please check out our Payment Page and our Payment Under The Construction Act Page for more information about the following;
- Our Top 10 Tips To Help Specialist Contractors Avoid Payment Disputes
- How Sub-Contractors Can Get Paid On Time?
- Contractor Not Paying Subcontractor
- When Can Sub-Contractors Suspend Performance?
- Set Off and Contra Charges
- Pay When Paid
- Late Payment By Contractor
- Non-payment by Contractor
- Subcontractors Remedies For Late or Non-payment
Free Advice For Specialist Contractors About Construction Payment Problems
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