The swing of the payment pendulum

Getting paid is a perennial problem in construction. The Construction Acts 1996 and 2009 were meant to help. They were meant to prevent employers and main contractors withholding monies due without any/good reasons. But do they?

The evidence

In 2018, the Federation of Master Builders lambasted employers and main contractors  for spurious retentions and late payments. It found nearly 25% of SMEs have to wait more than 4 months for payment from employers and main contractors [read more].

A survey by the Electrical Contractors Association (among others) showed that 63% of suppliers are still facing payment delays, on public sector projects [read more].

Research by Funding Options (a business finance aggregator) said late payments had hit a five-year high [read more].

But perhaps the requirements of the Acts have in fact tied people in greater knots than before. Do the procedures really help?

Proper procedure

In Systems Pipework v Rotary, HHJ Coulson noted that

there is a concern that the pendulum has swung too far the other way

i.e. that payment clauses now provide draconian consequences for those who fail to strictly follow their procedures.

There is a subtle distinction between each interim payment, which can always be corrected in the next interim payment/valuation, and the final payment, which as its name suggests is final. In this case the court was considering the sub-contractor’s entitlement to its final payment. Effectively the subcontractor was concerned that poor process might mean its right to payment “would be lost… for all time if there has been a valid notification [of the sum owing by the contractor] and no dissent [by the subcontractor].”

The court decided that its interpretation of the contract would require the contractor to go “about things in the right way, and with proper transparency” in order to rely on contract terms to prevent further debate about the monies due.

The court clearly did not approve of the contractor’s lax approach to payment requirements, relying on and arguing that the procedure in the contract ‘let it off the hook’.

What should you do?

To comply with most construction contracts, payment terms and the Acts:

  • contractors must set out their claims with proper clarity
  • any claim for payment must be free from ambiguity and clear that it is a claim for payment
  • any procedure should (as the Acts intended) encourage simplicity and clarity
  • if you want to deny the other a right to challenge the amount due, your contract and acts must meet a high threshold.

What is your view? Has the pendulum of procedure swung too far? Are the procedures too complex?

Case: Systems Pipework Ltd v Rotary Building Services Ltd [2017] EWHC 3235 (TCC)

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