It’s Wise Up Wednesday! Payment Law
Construction Industry Payment Law
This week’s Wise Up Wednesday Guide for Specialist Contractors is about the all important topic of getting paid.
Despite it’s importance, there is is still a good deal of misunderstanding about how the law in relation to payments in the construction industry actually works.
The Construction Act exists to protect you, but it can’t do that if you don’t apply it. Similarly, it applies to your subcontractors (including labour only subcontractors), so you can also fall foul of it if you are not careful.
Please don’t be put off by thinking it’s legal mumbo jumbo that only lawyers can understand.
Adequate Payment Mechanism?
Every construction contract (as defined in the Construction Act) must have an “adequate” payment mechanism. In very simple terms it must have a:
- Payment Due Date – when the work must be valued
- Payment Period – time between Payment Due Date and Final Date for Payment
- Final Date for Payment – latest date when payment can be made In any event
- Mechanism that clearly determines the Payment Due Date and the Final Date for Payment.
Very often all these dates are set out in some form of Payment Schedule, but it is not uncommon for the contract to fall foul of the Act, irrespective of how the dates are established by the contract.
If the contract payment terms do not meet the requirements of the Act, or there are no payment terms, the provisions from the Scheme for Construction Contracts (a separate but related Statutory Instrument) will apply.
In other words, one way or another, if the Act applies, you can establish as a matter of law what the payment terma are.
There are strict requirements for both payer and payee to issue and manage payment notices which operate the payment mechanism.
All Notices must state the amount and the “basis” of calculation.
So, you must be certain of what the Payment Due Date is as there is a requirement to serve a Payment Notice up to 5 days after the Payment Due Date. If this time period is missed it is a breach of contract with consequences.
Good News For You
This is all good news for you, because the vast majority of the time you are going to be the payee. And if the Contractor/Client payer is in breach by failing to serve a Payment Notice in 5 days, you can serve a Default Payment Notice.
However, most contracts require you to submit an application for payment, and in that case your application for payment automatically becomes the Default Payment Notice.
If a Default Notice is served there is no defence to the amount claimed if a Payless Notice is not served in the time specified.
Valid Payless Notice?
A Payless Notice is a final chance for the payer to value the works and withhold monies, thus trumping the Payment Notices or Default Payment Notice. However, the Payless Notice must be valid and must state the amount and basis for calculation, and it must be served on time.
The key thing about Payment Notices is that timing and content is critical to their validity, and if these Notices are not managed properly by the Contractor/Client you are entitled to challenge them.
This all gives you a good start in the battle to get paid properly, albeit that you can’t automatically take it to the bank.
I hope you enjoyed my Wise Up Wednesday email and that it gave you some food for thought, and if you haven’t yet downloaded our complimentary guide on how to get paid you can do so here; How To Get Paid
I sincerely hope to speak with you soon.
P.S. Please remember if you have a problem, take action sooner rather than later. If you’re not sure what to do or just want a second opinion, please give us a call on 01773 712116, or email email@example.com