If you employ Sub-Contractors this week’s blog is for you; it’s about the all important topic of Payment Notices.
Is Your Payment Mechanism “Adequate”?
Every construction contract (as defined in the Construction Act) must have an “adequate” payment mechanism.In very simple terms it must have a:
- Payment Due Date – when the work must be valued
- Payment Period – time between Payment Due Date and Final Date for Payment
- Final Date for Payment – latest date when payment can be made In any event,
- Mechanism that clearly determines the Payment Due Date and the Final Date for Payment.
If the contract payment terms do not meet these requirements, the provisions from the Scheme for Construction Contracts will apply.
There are strict requirements for both payer and payee to issue and manage payment notices which operate the payment mechanism.
All Notices must state the amount and the “basis” of calculation. So, you must be certain of what the Payment Due Date is as there is an absolute requirement to serve a Payment Notice up to 5 days after the Payment Due Date. If this time period is missed it is a breach of contract with consequences.
Bad News For You
This is could all be bad news for you, because when you are the payer you must get it right or you could find yourself in breach of contract by failing to serve a Payment Notice within in 5 days of the Payment Due Date.
Most contracts require your Sub-Contractors to submit an application for payment, and in that case their application for payment automatically becomes the Default Payment Notice.
If a Default Notice is served there is no defence to the amount claimed if a Payless Notice is not served in the time specified.
Valid Payless Notice?
A Payless Notice is a final chance for you as the payer to value the works and withhold monies trumping the Payment Notices or Default Payment Notice. However, the Payless Notice must be valid and must state the amount and basis for calculation.
The key thing about Payment Notices is that timing and content is critical to their validity, and if these Notices are not managed properly by you your Sub-Contractors will be entitled to challenge them.
And that means you could end up paying monies which the Sub-Contractor is not actually entitled to. don’t risk it, check your processes now.
Got a payment problem? Get in touch and let us help! Call 01773 712116 or email email@example.com to find out more.