Small Change for New Payment Legislation
First published in Construction News on 1 September 2011.
You could be forgiven if recent announcements that parts of the Local Democracy, Economic Development and Construction Act will come into force in England and Wales on 1 October (1 November in Scotland) passed you by unnoticed. But buried in the rather confusingly titled legislation are provisions affecting something close to the hearts of many of us – getting paid under construction contracts.
Despite the length of the Act, in practical terms many of the changes to the current law on payment are insignificant but there are a few that deserve a mention. These, in my opinion, are the top three practical changes worth taking note of:
CHANGE 1: ‘DIY’ payment notices
Currently a paying party must give notice before the relevant payment date confirming the amount intended to be paid. This flushes out potential payment disputes early and helps from a cash-flow perspective by triggering statutory rights to receive that payment. All too often though, the notice is simply not given, undermining the whole process.
The new rules allow a party who does not receive a notice to simply issue its own. Alternatively, if a party has already made an application for payment, that application will stand as the payment notice. Either way the amount notified must then be paid unless properly challenged in a properly issued withholding notice.
CHANGE 2: Better remedies following suspension for non-payment
After giving the proper notice, an unpaid party can suspend its works or services following non-payment. Currently the right to suspend brings with it an extension of the duration of the suspension but the new rules also entitle the unpaid party to:
- choose whether to suspend some or all of the services
- claim costs and expenses of the suspension
- extensions of time for other delays caused by the suspension
CHANGE 3: Improved payment rights for subcontractors
Clauses common to many subcontracts which seek to limit payment to the amount certified for those works under a main contract will no longer be permitted. In future, subcontract valuations may only reflect the actual value assessed on its own terms.
Fortunately all of the main standard forms of contract are set to be updated to comply with the changes. Those relying on their own bespoke terms and conditions however should check that those terms don’t fall foul of these new rules.