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[ Questions answered: Legal advice ]

what charge could be placed on each warranty. However, the obvious answer in this instance is, if you did not contract to execute a warranty, don’t – at least not without some signifi cant inducement in return.

We have received a long letter that seems to be asking us to start works in the expectation of receiving a formal order sometime hence. How

should we react? The best answer to your question is always to take specialist legal advice. Works let under a ‘letter of intent’ are

often reported on in the legal press, which means the opinion that one judge voiced ‘that letting work under a letter of intent was tantamount to being negligent’ had some justifi cation. Letters of intent are let at the sender’s risk, as they often fail to bind the parties together on an adequate basis. Recipients may assume that this puts them in the clear, but disputes could cost both parties very dearly. However, if the sender fails to comply with the terms of its own letter of intent and then sends a full set of contract documents, it may not be in the recipient’s best interests to instantly sign-up. Again, we’d recommend you should take advice; circumstances may be that your best interests are not served by executing the formal agreement. Our suggestion would be to micro-manage the contractual administration and to do nothing that may be construed as outside the terms of the letter. You may be under a duty to manage not only yourself but also your client, so establish a clear line of communication with the contract administrator, and keep them advised of all your committed expenditure.

We are working on a purchase order which confi rms our price, but little else. Now the client has put us on notice that he is withholding part of

our money pending a review. Does he have this right?

We fi rst heard the term ‘withholding notice’ in the context of payment for construction work when the 1996

Construction Act was passed. Since that time, the Act has been subject to a series of judgements that have clarifi ed the position in respect to which contracts are governed by the Act and which are not. The fi rst and best advice anyone considering a solution to a diffi culty should consider is ‘ look in the contract, or what does the contract say?’ The Construction Act will sometimes imply certain details where the contract is silent or defi cient, but case law has indicated that for a purchase order to be Act-compliant it must evidence all key aspects

Any interest in overdue accounts?

What is the point of charging interest on overdue accounts when the Bank of England’s headline rate is only half of one per cent? Interest rates – at least the headline one – are very low. Infl ation is running at eight times the Bank of

England’s interest rate, and as a consequence we understand why there is a reticence to charge interest, at least from a fi nancial point of view. The Late Payment of Commercial Debts (Interest) Act 1998 encourages the use of a substantial rate – one that acts as an incentive for businesses to pay their bills on time. Currently, it is set at eight per cent over the base rate and, although eight and a half per cent may not seem a lot, when the compensatory aspects of the Act are also factored in, the fi rst ‘interest charge’ invoice proportionately is quite rewarding. And there

of the agreement in writing. The pivotal case has been subject to a number of contradictory fi ndings, but in the context of the above purchase order, we suggest that there is no such right. Also, in the absence of an order that details both time and quality constraints and all the other issues the standard forms of contract detail, we suggest that the order is currently not Construction Act compliant. This position will change after 1 October, from when the majority

is no defence to it. The Act provides for a 30-day credit period; thereafter, interest becomes due, and the ability to levy this charge is one provided by statute – it doesn’t need to appear in your terms and conditions. Further, a number of contractors try to get around the more onerous aspects of the Act by providing that the rate is say, two per cent over base. They go on to say that both parties agree that this is a substantive rate, to satisfy the Act’s requirements. The courts will treat this with the derision it deserves. We favour one warning letter, provided free of charge by the ECA’s debt collection partner, Effective Credit Collections, and then the submission of the interest invoice to the defaulting customer. It pays to have a robust credit management policy and to apply it without fear or favour. People will get to know if you are ‘a soft touch’, and treat you accordingly.

of contracts for construction operations will be regulated and the provisions of the Act and revised Scheme for Construction Contracts will be fully implied into the contract.

Your questions answered:

ECA members can receive free advice on commercial contract and legal issues from the ECA Commercial Contract and Legal department by calling 020 7313 4818.

September 2011 ECA Today 57

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