Construction contracts entered into on or after 1 October have some new payment rules. If the parties have not amended standard contracts to comply with the legislation, then statutory payment mechanisms may be imposed on the parties.
The most significant new rule gives the party due to be paid (the contractor or subcontractor) stronger powers to be paid the full amount that it claims. The payer must serve a payment notice stating the amount it considers to be due and the basis for the calculation. If the payer does not, or is late, the contractor or subcontractor can serve its own payment notice stating the amount it considers due. The payer then has to pay that amount (although if it has grounds, it can serve a notice to pay less, which will operate like a withholding notice does now).
If the contract requires an application for payment, that application can stand as the payee’s notice if the payer fails to notify. Where a sub-contractor makes a monthly application and the main contractor fails to serve a payer notice in time, it must pay the full amount of the application even if on a closer analysis there might be good grounds for challenging parts of the claim.
The Construction Act amendments came into force in England and Wales on 1 October and in Scotland on 1 November 2011.
Industry bodies such as the JCT and NEC published updated versions of their standard forms of contract in September 2011. If you use bespoke contracts, schedules of amendments, certain types of development agreements or your own contract terms and conditions, these need to be revised and updated.
Your staff will need to become familiar with the revised payment procedures, including the new forms of notice.
You might be involved in a term contract or framework agreement which relies on individual packages of work, and the existing or the amended Act might apply to the packages of work instructed after 1 October 2011.
You might be connected with a project where some of the construction contracts are entered into before 1 October 2011 (the existing Act applying) whilst others might be formed after 1 October 2011 (the amended Act applying).
The amended Scheme for Construction Contracts will be implied into many more contracts, particularly as oral construction contracts entered into after 1 October 2011 will be caught by the amended Act.
Please contact Steve McCombe or Eric Livingston for advice or more information, including:
- amendments to your terms and conditions to ensure that they comply with the amended Act, which we can carry out for an agreed fixed fee.
- training your staff on the new procedures.
