The Construction Acts 1996 and 2009 introduced a process for payment for construction contracts, based on payment by instalments.
However, the Acts also introduced some terms which can confuse you, as all is not what it appears:
- the due date: this is not the date on which the (sub)contractor can expect to be paid, nor when money is due, nor when the client has to get its cheque book or payment card out. It is merely a notional date in the process.
- the final date: this is the latest date when the (sub)contractor must be paid, when the money is due* and when the client has to have ensured cleared funds are with the (sub)contractor.
*The slight twist being that the client can issue a pay less notice to the (sub)contractor just before the final date setting out that it intends to pay less than the previously agreed or stated amounts. This is equivalent to a second-bite of the cherry but shows clearly why the due date is NOT a date on which payment was ever intended to be made (or in simple language, to fall due).
When Will You Get Paid
Ideally, your contract should set out these due and final dates – if not see the implied dates below.
To find out how long you might have to wait to get paid you need to review:
- How soon after completing the work or any elements of it you can apply for payment (is it at the end of that month or the end of the following month?)
- How soon after your application is the due date?
- How soon after the due date is the final date?
For example, many main contractors provide that the final account payment due to a subcontractor can be applied for only once the whole of the works have been completed; the payment due date may be days or weeks after that; and the final date sometimes months or years after the due date. All of which can mean the effective date when you get paid for completed works is years after you actually finished them!
Implied Due and Final Dates
If your contract is silent on these dates then you are lucky.
The Construction Acts provide that if the express terms of the contract are not clear enough about the due and final dates (by meeting the minimum requirements set out in the 1996 Act), then those dates are set by the Scheme for Construction Contracts. The Scheme gives a much shorter timescale than most contracts do:
- the due date: when the (sub)contractor makes an application for payment, or 7 days after the end of any interim payment period (30 days after completing the works for a final payment)
- the final date: 17 days from the due date.
For most interim payments, the (sub)contractor should get paid 24 days after month end and 47 days after the end of the project.
When Will You Get Paid?
For construction companies with a turnover of more than £36m pa, there is a new duty to report on payment practices which has shed light on the late payment culture in construction (read more) with companies showing significantly longer payment periods than the 30-days mandated by government. Main contractors reported the percetnage of invoices processed within 30 days:
- Kier – 32% paid in 30 days (34% over 60)
- Galliford Try – 39% paid in 30 days (27% over 60)
- Lendlease – 46% within 30 days (13% over 60)
But the data also showed that of the top 25 contractors, 8 companies took 50 days or more to pay on average and another 12 took 40 days or more. None of the 25 main contractors paid on their invoices on average in 30 days. Although Willmott Dixon and Canary Whary get honourable mentions for paying 92% of invoices by agreed dates and with average payment terms of 33 or 34 days respectively.
What Should You Do?
The payment process under your contract should be simple enough to map it into a flowchart or process diagram.
The process should provide for
- a swift due date at the end of each payment period (whether weekly, monthly or based on stages of the works) linked to the (sub)contractor’s application for payment.
- at least 5 days’ warning if the client intends to pay less to give the (sub)contractor time to discuss it with its own suppliers.
- a final date for payment which is realistic to meet the needs of the (sub)contractor’s business and achievable for the payment staff of the client.
- no more than 30 days from completion of work to payment (the final date).
Don’t make empty promises of payment – get your internal processes up to lightening speed.
Clients and contractors need to meet their payment obligations to the letter. As Engie pays 99% of invoices within agreed payment terms, so can you!