[ Construction Act: Update ]
Contractors could be responsible for delaying their own payments due to changes in the Construction Act. Ken Tracey details the new payment notice procedure
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About the author
Ken Tracey
Ken Tracey is commercial adviser at the ECA. He has extensive experience in the industry as a quantity surveyor, specialising in contractual matters, payment, dispute resolution tendering, business advice and CIS.
ou may not yet be aware of it but you should be. The new Construction Act (The Local Democracy, Economic Development and Construction Act 2009) that is scheduled
to come into force next year will change the way subcontractors apply for payment. It will compel the industry to redraft its terms and conditions. The issue of payment notices, along with the other amendments, are crucial changes every business in the industry needs to be aware of.
Current position
There is still some time for businesses to gain an understanding of the new practices before the new act comes into force. During 2010 there will be government consultations with the industry to update The Scheme for Construction Contracts (scheme). Following this, the government must issue a commencement order; it is envisaged that this will be issued in 2011.
Change to scope
The act will apply to both written and oral contracts; this will allow more disputes to be referred to adjudication without attracting challenges to the adjudicator’s jurisdiction as to whether or not a contract is covered by the act. However, the adjudication procedure must be in writing; in the case of oral contracts this is likely to be the scheme procedure.
The payment notice
Payment notice procedures have changed to ensure that they are issued instead of the common practice of being ignored, depriving subcontractors of prior knowledge of their payment. With the new act, a procedure has been introduced whereby the party who is entitled to a notice but does not receive it may issue his own notice back to the paying party, provided that the payment notice date has passed – a statutory maximum period of fi ve days beyond the due date (see ‘Payment’ diagram). On receipt of the payee’s notice, the payer has the option to pay the sum notifi ed or to issue a notice to pay
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ECA Today Summer 2010
less. If the payer does nothing, then the sum notifi ed becomes the ‘notifi ed sum’ and must be paid. Should the payer choose to pay less, then the ‘notice to pay less’ is issued at a later date in accordance with the timescales in the contract. There is an absurdity, because the final date for
payment is then extended by the number of days that pass between payment notice date and the date the payee issues his own notice – so the payer wins extra time to pay due to his own default in issuing a notice.
Suspension
The useful tool of suspension due to non-payment has been reinforced by the provision for the non-payer to be liable for direct loss and expense incurred during the suspension period. This is a good deterrent to late payment.
Conditional payment
‘Pay when certifi ed’, introduced to avoid the ‘pay when paid’ ban, has now been rendered ineffective.
Adjudication
The tactic to discourage a party from exercising their right to refer a dispute to adjudication by making the referring party liable for the adjudicator’s fees/costs has now been banned. This is helpful to subcontractors who are often the referring party in disputes and are generally bound by the wording of the contractors’ contract.
Valuation Due date
Payment - Construction Contracts Act
Payee notice
Payment notice
5 days max Say 2 days
Notice to pay Less
Final date for payment
Final date for payment 2
Agree period Extended 2 days
Say 7 days
Say 17 days
The Commercial Contracts & Legal Dept (CC&L)
The department provides: ■ Practical advice to ECA registered members on tendering, contract administration, payment, insolvency and commercial matters;
■ Services for debt recovery, credit rating, mediation, CRB checks and business succession introductions;
■ Guidance on alternative dispute resolution; ■ Advice and guidance on market trends and developments in legislation;
■ Guardianship of ECA Guarantee and Bond schemes; and
■ Infl uence on industry and EU regulation.
For further information or advice, telephone CC&L Dept: 020 7313 4818; website:
www.eca.co.uk
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