Money… in the form of late, incomplete or missed payments is one of the biggest causes of dispute (World Commerce and Contracting Most Negotiated Terms Report 2022).
It is critical that both parties to a deal know:
- when, to which individual and in what format the supplier must apply for money or invoice (or both)
- when, from which organisation and through what means the buyer will pay
- where there are interim payments, the dates or triggers for each payment cycle
- how the price or fee agreed can change.
Make payments easy
Cheques?
I reviewed a subcontract which stated that the main contractor would pay them by cheque – when challenged the subcontractor was told this was ‘company policy’. Of course it is but only for their subcontractors… they get 3 extra days before the money leaves their account if they pay in this antiquated way. [I would happily bet they don’t pay the tax authorities this way!]
When I help subcontractors to write their own subcontracts, we specify that payment is by direct bank transfer, to minimise misunderstanding as well as transaction delays and costs. In a world of digital banking, anything less is taking the mickey. What next – denarii, cryptocurrency or pigeon post?
Poor Process?
An English court considered in 2023 whether an application for payment by the contractor was valid. The subcontract required that the subcontractor must make a payment application for each interim payment ‘so as to be received no later than 4 days prior to the valuation date‘ for that payment.
The contractor argued that:
- days meant clear or full days beforehand – the court said no (no such language was used in the contract)
- the day ended at the end of site hours for that day – the court said no, it ended a minute before midnight (English law does not recognise fractions of a day)
- received must take account of when the site was open – the court said no, and in any event it was received when the contractor’s email servers received it.
As usual the court confirmed that it was:
open to parties… to require within a contract that particular documents or notices need to be provided within defined time periods (whether loosely (e.g. ‘within business hours’) or specifically (e.g. ‘between 9am and 5pm’)).
Frankly, I find it hard to believe the contract referred to receipt. As most invoices or applications are sent digitally the date of the invoice is often exactly the same as the date of sending and the date of receipt. One of these dates is much easier to ascertain afterwards – the date on the invoice. This is my preference for a start date to calculate other periods including how long aftwards you want the buyer to pay.
Whilst not directly relevant to this part of the decision, under English law construction contracts need to reflect the minimum requirements set out in the Construction Acts 1996 and 2009. The terminology in those Acts is not always easy to follow and it also creates new layers for any payment process to which the Acts apply. In my 500-word contracts, I have worked hard to simplify and clarify this terminology (check out my samples for example wording). It won’t suit everyone but it is a framework to build on.
What should you do?
Ensure your payment provisions are unambiguous, clear (in the sense of cannot be misunderstood) and can be implemented by both the supplier and the buyer. If in doubt, grab a copy of my Happiness Checklist to see if you both really understand them.
Case: Elements (Europe) Ltd v FK Building Ltd [2023] EWHC 726 (TCC)
