Construction Act Payment Provisions

Chris Holwell considers the games played by parties to construction contracts to manipulate payment requirements.

The Housing Grants, Construction and Regeneration Act 1996 was substantially amended with effect from October 2011. Soon afterwards, people started playing games with its provisions - some can be very expensive for the loser

Background there must be a "due date" for each payment; there must be a "final date" for each payment; the contract must require a "payment notice" to be given within 5 days of the due date, stating what is to be paid and the basis on which it is calculated - this can be a duty of the payer or the payee; if the payer is to serve the payment notice and fails to do so, then the payee can serve a default payment notice, or if the payee’s application for payment set out the amount claimed and the basis on which it was calculated then the payee’s application for payment (eg an invoice) can automatically be deemed to be the default payment notice; if the payer changes his mind or disagrees with a payment notice or a default payment notice served or deemed served by the payee,he must serve a "pay less" notice, setting out what he proposes to pay and the basis on which it is calculated, a given number of days before the final date for payment – if he fails to do so then the sum stated in the payment notice is payable on the final date for payment; payment cannot be made conditional on someone giving a notice to the payee about what payments are due (eg a certificate from the project manager, who will of course be working for the payer); "pay when paid" clauses are generally banned.Due Date and Final Date Specific Invoicing Requirements No Due Date or Final Date for Disputed Amounts. The due date is tied to the payer’s receipt of a valid invoice for the sum due. The contract also says that if any amount is disputed by the payer, the payee has to issue a credit note for the original invoice, which then ceases to be valid, and submit a revised invoice for the undisputed amount. The disputed amount may be invoiced following determination of the dispute. A disputed amount therefore never becomes due until it ceases to be disputed.The payee has to submit an application rather than an invoice, and only when the amount due is agreed can it be invoiced. Sums become due on receipt of a properly submitted invoice. A sum which is not "agreed" therefore never becomes due.The final date for payment is 30 days after the due date in respect of undisputed sums but in the case of disputed sums the final date for payment is 7 days after the determination or settlement of the dispute. Disputed sums therefore become due but don’t have to be paid until they cease to be disputed. 

When Paid Inflated Interim Applications.

This article was first published by Solicitors Journal on 8.3.16 and is reproduced with kind permission.