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Late and no payment in the construction industry – be aware of the tools available
Published in the FSB Business Network magazine in June 2014
There’s never been a golden age for contractors, a time when work was completed, invoices were issued and full payments were received on time.
On a recent Portuguese holiday the owner of the apartment complex said that he had been a builder in Surrey in the 1970s but gave up through the frustrations caused by late payment, moving instead to the sunshine.
While late payment has not changed and possibly even got worse since the 1970s what has changed are the tools available to contractors to fight the problem.
In 1998 the then Government introduced the Housing Grants Construction and Regeneration Act 1996 ['the Act'] and then to make it more effective it was amended in 2011 with the succinctly named Local Democracy, Economic Development and Construction Act 2009 [the 'New Construction Act'].
Used wisely the New Construction Act can be a significant tool in persuading contractor’s clients to pay on time.
Because of the New Construction Act the days when a contractor submits an application for payment and hears nothing and receives nothing are effectively over.
The New Construction Act requires that the payer issues a Payment Notice and/or a Pay Less Notice by the date defined in the contract.
If the payer does not issue the required notices or issues them later than the date defined in the contract – POW – the sum payable is the sum in the application.
If after all, the contractor still does not get paid the due amount by the date for payment then the New Construction Act provides a further powerful tool, sharpened more from the old Act.
If the contractor does not get paid the New Construction Act allows the contractor, subject to giving proper notices, to suspend any or all of its obligations under the contract.
So, for example, if the contractor wants to keep its design team employed but the payer wants ‘block B’ completed the contractor can, subject to good notices, suspend its obligations to complete 'block B' until the due amount for payment is paid.
So the Government has provided contractors with powerful tools which if used wisely can be tremendously helpful in resolving the age old problem of getting paid the right amount of money at the right time.
This means that it is in the payer’s interest to pay the contractor on time.
Armed with the New Construction Act what is now needed is for contractors and payers alike to understand what the provisions area and apply them so that cash flows better and more reliably through the industry.
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