Arbicon ADR Ltd
RICS

Payment Issues

Payment in Default

Put simply…

"The Law says that if a required Invoice or Payment Application that is submitted is ignored or inadequately responded to or that response is not done in time then the Invoice/Application for Payment automatically is the LEGAL SUM DUE in Default. What you ask for is what you get! If they still do not pay, there is no defence and Arbicon will adjudicate an order to pay".

The Construction Acts provide an absolute statutory right to payment for work carried out under a commercial construction contract and clauses that restrict or block payment are illegal. The payment must also be calculated and notified by the payer in strict time limits otherwise the payee gets every penny of what he asks for. The law is very strict on this and such cases make easy adjudications.

The Construction Industry has suffered for years with a reputation of bad payers ignoring those in need of payment and often the reason behind much insolvency. Even though the law has been in force on Default Payment Rights since 1st October 2011, those used to not paying their way have been caught out lot leading to a number of cases known as "Smash and Grab" adjudications. It is not "Smash and Grab" it is "Pay-up you are in breach of Contract for Non-Payment!".

If a sum is not notified by the payer in either a Payment or Payless Notice clearly stating unambiguously how much will be paid and the basis for the calculation not given, the notification risks being void. It must also be served within the short timeframes in the "Payment Period" otherwise again it will be void. Strict management of the payment notification must be adopted of the payee application/invoice automatically becomes due.

Illegal Payment Clauses

Illegal payment clauses by example are pay-when-paid payment terms or no payment if a contract is not signed, is illegal. The only exception is an insolvency of the Employer clause, which is when the Employer goes bust the Contractor does not have to pay the sub-contractors. There must be a clause though!

Adequate Payment Mechanism

Construction contract payment clauses must also have an "adequate payment mechanism" where the key components for payment must be present, being how do payments become due and when are they paid. If there is no terms or an "inadequate payment mechanism" the Scheme applies. The Scheme is like a default set of contract terms that work with the Construction Acts which apply when a term is missing in the contract in relation to Payment and Adjudication. If you have not agreed any terms you are likely to be better off and there is always an adequate payment mechanism that exists.

Typical Payment Issues

Payment Issues arise through problems with the works, overpayment, underpayment, damages/loss or simply an unwillingness to pay. There are numerous reasons for issues some of the common ones are:

  • Payment Notice failure
  • Design failure
  • Retention not released
  • Quality of Work
  • Quantity of Work
  • Variations – Liability and Quantum
  • Scope of Work non-compliance
  • Delay in delivery of the works
  • Liquidated Damages
  • Defects
  • Termination / Suspension / Repudiation
  • Human error – miscalculation, incompetence, acts or omissions
  • Pay-when-paid
  • Insolvency
  • Late Payment Interest and Costs

Late Payment Remedies

Any late payment will entitle the injured party to late payment interest, the extent of recovery including costs for pursuing the late payment will depend on what is agreed or not as the case may be.

Put simply…

"The Law dictates that if there is no contract remedy for Late Payment, you are entitled to simple interest at 8% over the Bank of England Base Rate and reasonable costs of pursuing the debt. Costs of employing Arbicon in such an instance can be claimed plus interest."

The law comes from the Late Payment of Commercial Debts (Interest) Act 1998, updated by the 2013 Regulations from 1st May 2013, which allows simple interest costs to be claimed. The one proviso is that if the contract contains a reasonable remedy for late payment then the Act does not apply. Typically, a JCT contract includes 5% including all interest and costs, that is all that can be recovered. Depending on what side you are on, you would seek to remove or include the application of the Act!

If you have any payment issues and call one of our experts for an initial consultation today.

Call us on 01733 233737  Peterborough

0207 406 1494 London

0121 262 4086 Birmingham

Or email us via our contact form here.