That
cashflow is the lifeblood of the
construction industry was the
rationale for the Housing Grants
Construction and Regeneration Act
1996 designed to improve payment
terms in the industry. Knowledge of
payment terms is crucial to every
contractor and sub contractor to
maximise cashflow.Most
standard forms of contract provide
“monthly payments” which are based
upon the value of the work completed
in the previous month. It is rarely
that simple however and monthly can
mean 30, 60 or 90 days or that the
payee is at the mercy of the payer
or his representative, depending on
the wording, assessment, valuation
and certificate requirements.
Whilst the whole contract should be
read and understood, how the payment
regime works in each instance should
be understood and any uncertainty or
ambiguity clarified before execution
of any agreement and systems put in
place early by the payee to ensure
there is no fault or error in
applications for valuations which
delay payment. How cost overruns,
variations, extensions of time, loss
and expense claims are to be dealt
with should be understood from the
outset and not deferred until final
account but dealt with as the work
is being carried out to minimise
issues and deductions at the end of
the contract and maximise cashflow
as the work is undertaken.
“Pay when paid” clauses have been
outlawed since s113 of the
Construction Act came into effect.
There are many ways to get around
that provision including pay when
certified provisions, payments when
upstream payers certify, payment
when various notices are received.
Also, such clauses are permitted
where the payer is insolvent under
s113(1) although the clauses need to
be carefully drafted to cover the
definition of insolvency adequately
[William Hare Limited v Shepherd
Construction Limited 2009].
In the event of no, or inadequate,
payment terms in a contract the
provisions of the Construction Act
and the Scheme are implied into it
(s109 – s111). The provisions of the
Construction Act and Scheme have
been circumvented as can be seen
above, but some of those avoidance
provisions themselves are to be
outlawed under the Local Democracy
Economic Development and
Construction Act 2009 when it comes
into effect (it is thought from 1
April 2011).
The LDEDCA will see some changes to
the existing regime. The current
provisions which require a contract
to provide for instalment payments
by means of assessing what will be
due and when paid will, like the
provisions of s113, be preserved.
The LDEDCA will try and close the
loopholes in “pay when paid”, no
longer allowing payment when
certified by the employer or its
representatives or otherwise linking
payment to another contract. There
are other provisions designed to
prevent the payer delaying matters
until it gives notice. No doubt as
with the old regime attempts will be
made to circumvent the process but
contractors and sub contractors
alike should understand the express
payment terms in the contract and be
aware of the terms implied by the
Construction Act and / or the LDDCA. |
