Should You Be Issuing Payment Notices?

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.

Payment Notices

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 info@streetwisesubbie.com to find out more.

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Another Two Specialist Contractors Bite The Dust…But Who’s Counting?

Another One Bites The Dust…

(It’s two actually – but no-one seems to be counting)

Just read about not one, but two Specialist Contractors that have bit the dust this week…

McGrath Bros (Engineering) Group has ceased trading with the loss of 171 jobs.

The firm, founded in 1981, worked on major projects across the UK, including the London Olympics Aquatics Centre, with a London office in Tottenham handling a large order book in England and a Glasgow office covering Scotland.

And…

Hull-based offsite manufacturer Modular Space Limited has fallen into administration.

The firm specialised in site cabins supplying the Costain/Skanksa joint venture on Crossrail and Wates.  It also delivered prefabricated buildings for school and health projects.

Skills and High Profile Projects Do Not Equal Success

Clearly both firms had worked on high profile projects, they don’t come much bigger than the Olympics and Crossrail. And there was no shortage of skills and expertise in these two companies, Modular had even developed a special two-storey house design, which could be assembled from four basic units in just five hours.

So What’s Going Wrong?

The fact of the matter is that whilst Trade Associations and Build UK tinker around the edges of the major issues facing you and your business, and promote nonsensical solutions to the very real and business threatening payment problems facing the industry, more Specialist Contractors are going to fail.

As Brian McGrath is quoted as saying;

“Legacy contracts taken on during the recession have also taken their toll on main contractors and specialist subcontractors alike, all linking to underpayments of completed works and disputed final accounts.”

So, if you are not getting paid properly then don’t delay in getting it sorted.

Please don’t stand for late or underpayment.

Take action

Take action to safeguard your business from the catastrophic impact of reduced, late, or non-payment in 2016.

If you don’t then it could cost you your business…

Unscrupulous Contractors use every trick in the book, to reduce and delay payments. Specialist Contractor’s efforts to avoid or rectify this problem often come too late in the process.

Don’t be one of the casualties, take action now.

You can download a complimentary “How To Get Paid” report right now, and put an end to reduced, late and non-payment.

And you can call us for initial no cost advice on 01773 712116, and our Gold and Platinum Buddies can use their commercial and contractual consultancy to find an answer.

Whatever level your business is at, and whatever your specialisation I want to encourage you to experience and enjoy a better more profitable, less stressful way.

 

UK Construction Blacklisting Scandal – It’s a Disgrace!

According to reports in today’s construction media Contractors involved in the construction blacklisting scandal have settled claims with another 180 workers.

Campaigners claimed the latest payouts totaled “in the region of £15-20 million plus legal costs” and come ahead of the full blacklist trial set to start at the High Court on May 9 and scheduled to run until July 31.

Eight contractors – Balfour Beatty, Carillion, Costain, Kier, Laing O’Rourke, Sir Robert McAlpine, Skanska UK and Vinci PLC – have set up The Construction Workers Compensation Scheme to try and settle with victims out of court.

A spokeswoman for the Contractors confirmed that 180 new settlements had been reached, and the Blacklist Support Group said there are currently 154 live claims remaining plus 82 recently issued new claims.

What’s that got to do with you?

You may be thinking what has that got to do with me?

Well, first of all the blacklisting happened in the industry from which we all earn our living, and frankly we should all be outraged that these Contractors behaved in this way and ruined the lives of so many people, and tarnished the reputation of the industry.

Secondly, we should be disgusted by the fact that having been found out, and in some cases admitted their part in the sordid affair, the Contractors involved have pushed their victims all the way to the steps of the court before paying out.

Lastly, Specialist Contractors need to be wary of the culture that pervades at the highest levels of some construction companies. Because frankly you need to be extremely careful that you don’t fall foul of it.

As we have seen some companies will do and say anything, so, if you do not look after your own interests, this is an industry where some people won’t think twice about making you suffer. Don’t fall for the Contractor’s BS, because it is highly likely (there are some exceptions), that what they are telling you is a pack of lies.

Take action!

One of the key areas that you need to be extremely careful about is payment. Please don’t stand for late or underpayment.

Take action to safeguard your business from the catastrophic impact of reduced, late, or non-payment in 2016.

If you don’t then it could cost you your business!

Unscrupulous Contractors use every trick in the book, to reduce and delay payments. Specialist Contractor’s efforts to avoid or rectify this problem often come too late in the process.

Don’t be one of the casualties, take action now.

Download “How To Get Paid” for free right now, and put an end to reduced, late and non-payment!

Whatever level your business is at, I want to encourage you to experience and enjoy a better more profitable, less stressful way.

 

I hope you enjoyed my Wise Up Wednesday email and that it gave you some food for thought, and please don’t hesitate to grab your Free Report at “How To Get Paid” and if you need any help with any of your business problems pick up the phone and give us a call on 01773 712116.

When you’re not getting paid in construction, when is the problem not about payment?

Don’t confuse the two…

Question: When you’re not getting paid, when is the problem not about payment?

Answer: When it’s a dispute about valuation.

The two things are interconnected but they are not the same!

They are different problems that require different solutions.

Reasons for under valuation in construction

There are a wide range of reasons why you might not be getting paid properly, but the most common are the under valuation of your account including variations and valuation of the final account.

There are several steps that you can take to avoid under valuation.

First, know your contract: It is important to always check the terms and conditions of your contract and be fully aware of specification of the works, payment terms, variations and extensions of time clauses and adjudication clauses.

Secondly, keep in touch with the Contractor or Client: Always give regular progress updates to Contractors and inform them of any factors that may give rise to variations delays etc. This can be achieved by regular agreed meetings and effective management.

Thirdly, before carrying out any additional work, ensure that you receive written instructions from the Contractor or Client and do not wait until the end of the project to try and get values agreed.

Keep everything: You can never keep too many records. Respond effectively to any verbal requests and ensure that you take pictures of the site, retain email conversations and, importantly, document any reasons for delayed progress.

Please don’t stand for late or underpayment.

Take action!

Remember that problems never resolve themselves.

If your works are not being properly valued, take remedial action early. The sooner you tackle the problem the less impact it is likely to cause, and the sooner you get the money the better.

It’s an old adage but you need to get your money out of the tin before it’s empty!

Try going to the top: If discussions at site level are not addressing a certain issue, then go to someone senior in the Contractor or Client’s business. Senior management is often able to take a broader perspective and this wider view can often help resolve disputes before they escalate.

If you do encounter problems that are not getting fixed, discussing things at an early stage with one of our expert legal advisers can be cheaper and simpler than trying to resolve an escalated dispute further down the line.

Take action to safeguard your business from the catastrophic impact of reduced, late, or non-payment in 2016.

If you don’t then it could cost you your business!

Unscrupulous Contractors use every trick in the book, to reduce and delay payments. Specialist Contractor’s efforts to avoid or rectify this problem often come too late in the process.

Don’t be one of the casualties, take action now.

Download “How To Get Paid” for free right now, and put an end to reduced, late and non-payment!

Whatever level your business is at, and whatever your specialisation I want to encourage you to experience and enjoy a better more profitable, less stressful way.

 

I hope you enjoyed my Wise Up Wednesday email and that it gave you some food for thought, and please don’t hesitate to grab your Free Report at “How To Get Paid” and if you need any help with any of your business problems pick up the phone and give us a call on 01773 712116.

Wise Up Wednesday: Payment Dates… What Payment Dates?

This week’s Wise Up Wednesday is a bit longer than usual, but please stick with it, because getting this wrong could kill off your business!

If you’ve agreed a schedule of interim payment dates, but the works continue beyond the last date in the schedule – will you still carry on getting paid?

Balfour Beatty thought so, but let’s see how they got on.

Quick Fact Check

Grove developments (GDL) employed Balfour Beatty (“BB”) to design and construct a hotel and serviced apartments under a JCT Design and Build Contract 2011 with bespoke amendments.

The Date for Completion was 22 July 2015.

In the contract “Option A – Stage Payments” was selected, but the space to insert a brief description was left blank, and the words “To be agreed within 2 weeks from date of contract” inserted.

Stage payments were not agreed. Instead, the parties agreed a schedule of 23 valuation and payment dates, which covered the period to July 2015.

What Happened Next?

On 21 August 2015 (after the expiry of the final date in the Schedule), BB issued a further application for interim payment for £23million (“IA24”).

Yes, you read it right £23 million!

On 28 August 2015, GDL served a Payment Notice and then on 15 September 2015 it issued a Pay Less Notice for the sum of £440,000, which it paid on 18 September 2015.

Ouch, that’s quite a bit less…

Time to get serious

BB argued that in the absence of any further dates in the Schedule, the correct approach was to revert to the terms of the JCT contract and the Housing Grants, Construction and Regeneration Act 1996 (the “Act”) and the Scheme for Construction Contracts (the “Scheme”).

BB argued that GDL’s Payment Notice and Pay Less Notice had both been given out of time.

BB started an adjudication on this basis and the adjudicator found in BB’s favour, deciding that GDL was to pay BB a further £2m on top of the £440,000 GDL had already paid.

Round 1 to BB…

The Fight Back!

GDL weren’t about to take this lying down…

GDL started court proceedings to obtain a declaration that BB had no contractual right to make any further claim for payment once the payment dates in the Schedule had expired.

Round 2 Goes To…

The Court said that “where the contract complies partially with the Act, the provisions of the Scheme only apply to the extent that the Parties have not already concluded binding contractual arrangements that can remain operative.”

And that; “It is for the parties to agree stage payments by reference to whatever stages and amounts they see fit.” For example, if the parties wish to agree a single stage payment during the course of a project, that is their choice.

The court added “the mere fact that the agreement does not provide for interim payments covering all of the work under the contract is no reason to import the provisions of the Scheme”.

Put simply, a contract that only provides for one interim payment, or in this case, 23 interim payments, will comply with the Act even if there are periods during which the contractor is doing work and not receiving interim payments.

Out For The Count!

Did BB have a contractual right to make and to be paid in respect of IA24 or any subsequent interim application?

The court stated “the parties’ agreement was clear and provided for 23 interim payments on the dates set out in the agreed Schedule and no more…

BB tried various different arguments – well you would wouldn’t you for £23 million!

But the court rejected all BB’s arguments, stating that it would have been foreseeable that the works might be delayed and the payment dates could expire. It was a mistake on BB’s part that they had failed to negotiate payment terms which would protect them against the risk of the works overrunning.

In conclusion, the court found that BB had no contractual right to make or be paid in respect of IA 24, or indeed any subsequent application for the remainder of the works!

The Moral Of The Story?

This case demonstrates that if you agree to a payment schedule in your contract, it is essential to make provision for what will happen if the dates in the schedule expire.

Failure to do so may well result in you having no further entitlement to interim payment at all.

And that could have disastrous consequences for your cash-flow!

The best way to overcome this risk is to agree a schedule of dates which continues far beyond when the works might be expected to complete. Alternatively, very clear wording needs to be added to the payment schedule to explain how further interim payments are to be calculated if the stated payment dates expire.

Unscrupulous Contractors

Needless to say that this is yet another angle that the unscrupulous Contractors will seek to exploit!

Take action to safeguard your business from the catastrophic impact of reduced, late, or non-payment in 2016.

If you don’t then it could cost you your business!

Unscrupulous Contractors use every trick in the book, to reduce and delay payments. Specialist Contractor’s efforts to avoid or rectify this problem often come too late in the process.

Don’t be one of the casualties, take action now.

Download “How To Get Paid” for free right now, and put an end to reduced, late and non-payment!

Whatever level your business is at, and whatever your specialisation I want to encourage you to experience and enjoy a better more profitable, less stressful way.

I hope you enjoyed my Wise Up Wednesday and that it gave you some food for thought, and please don’t hesitate to grab your Free Report at “How To Get Paid” and if you need any help with any of your business problems pick up the phone and give us a call on 01773 712116.

Payment Still Major Concern Despite Increased Workload

Specialist Contractors are still suffering from late payment on public sector projects despite an upturn in workload.

According to the latest survey payment remains a major concern for building services firms, with just 8 per cent of Specialist Contractors saying that public sector work was paid on time. And the private sector was even worse with just six per cent of respondents being paid within 30 days.

ECA CEO Steve Bratt said: “… payment continues to be a major concern to Specialist Contractors across the industry, with the overwhelming majority indicating that they are not paid within 30 days, which is now the widely understood measure of good practice”.

So, if you are not getting paid properly then don’t fall for the Contractor’s BS, because it is highly likely (there are some exceptions), that what they are telling you is a pack of lies.

Please don’t stand for late or underpayment.

Take action!

Take action to safeguard your business from the catastrophic impact of reduced, late, or non-payment in 2016.

If you don’t then it could cost you your business!

Unscrupulous Contractors use every trick in the book, to reduce and delay payments. Specialist Contractor’s efforts to avoid or rectify this problem often come too late in the process.

Don’t be one of the casualties, take action now.

Download “How To Get Paid” for free right now, and put an end to reduced, late and non-payment!

Whatever level your business is at, and whatever your specialisation I want to encourage you to experience and enjoy a better more profitable, less stressful way.

Wise Up Wednesday: Would You Ignore Being Ripped Off?

​Imagine you are in the supermarket and your favourite wine is advertised at 50% off, you put a half a dozen bottles into your trolley (whilst your partner isn’t looking), but when you get to the checkout the price you are charged shows that you only got the 50% discount on one bottle.

You query it with the cashier, only to be told that “you need to read the small-print on the advertisement”. Would you just accept it and pay up regardless?

No. I didn’t think so!

If you are like most of us you would be checking that ad and asking to see the manager and having a right go about it.

So why don’t Specialist Contractors adopt the same mentality when their business is being ripped off by onerous terms?

Not all contracts are the same, and onerous terms are there waiting to rip off the unwary. You will usually find them lurking in the depths of Contractor’s own “non-standard” documents,  but they can also arise as amendments to Standard Form contracts.

These terms are deliberately designed to reduce your entitlements and increase your obligations. They will certainly make your life more difficult, they could end up costing you a substantial amount of money, and in the worst case scenario they may even cost you your business!

The simplest way to put onerous terms into context is to ask yourself this question; “Why, when there are all manner of Standard Form contracts around such as JCT, NEC and MF/1, does anyone need to produce their own terms?”.

The simple answer is that it isn’t for your benefit!

So, what are the things you need to look out for? Here are some examples;

(a)          Extended payment periods

(b)          Long notice period before you are allowed to suspend performance

(c)           Pay when certified (unlawful in contracts to which the Construction Act applies)

(d)          Extended fixed price periods

(e)          Non-payment for unfixed materials

(f)           Excessive discount

(g)          Discount not linked to prompt payment

(h)          Excessive retentions and/or prolonged repayment periods.

(i)            Onerous set-off  and cross contract set-off clauses

(j)           Acceleration without payment

(k)          Vague programme information.

(l)            Design fitness for purpose obligations

(m)         Open ended co-ordination obligations

(n)          Restricted rights of recovery on variations

(p)          Protection of your  works

(q)          Client’s milestone dates for access

(r)           Excessive liquidated damages

(s)           Restricted extension of time entitlements

(t)           Restricted loss and expense entitlements

(u)          Delay notice periods made a condition precedent

(v)          Adjudication entitlements restricted or delayed

(w)         Costs of adjudication to be paid by the Sub-Contractor

(x)          Other Construction Act abuses​

Don’t Allow Onerous Conditions Into The Contract!

Obviously the best time to find out about onerous provisions is at the enquiry stage before you have even submitted your price. You should always be clear about the terms and conditions you will be working under if your tender is successful.

If you don’t know or don’t have time to find out about terms and conditions you should always qualify your tender. For example you could qualify it by saying something to the effect of

“Our price is based on the assumption that an appropriate JCT Standard Form of Sub-Contract will be used and subject to agreement of all necessary details to enable Articles of Agreement to be completed”

Or

“Our offer is subject to the agreement of appropriate terms and conditions and we have not priced the risk of entering into any onerous or non-standard form of agreement”

If your tender is successful then you will be invited to enter into a contract or possibly sent an Order or Contract to sign. This is a very dangerous time because a contract, including the onerous provisions could easily come into being!

The first line of defense lies is recognising onerous terms and conditions in the first place. Whilst you may be tempted to ignore the small print, you may subsequently find that a contract has come into force incorporating onerous terms which have fatal consequences for your business.

You need to act quickly and carefully. Don’t think that you can start work, even design work or ordering materials, and just because you haven’t signed the contract everything will be all right. It won’t!

The contract conditions should be carefully checked, particularly if they are contained in a completely non-standard form. Beware too of contracts that purport to be Standard Forms but then have pages and pages of amendments.

Unfortunately, you also have to be wary of clauses that are not there, as well as checking the ones that are!

For instance, if you are designing the works and the contract is silent about design liability, then you will have a very onerous “fitness for purpose” obligation. This is much worse than it sounds because you are literally guaranteeing your design will satisfy the Employer’s needs irrespective of what you knew or didn’t know about his business or industry.

In order not to be caught by onerous provision you must make it perfectly clear that you are rejecting their onerous terms. Notice I said rejecting their terms, not rejecting their order.

There may be times when you have to take a commercial decision to accept onerous terms and conditions of contract.  In this situation you need to be very clear about the risks you are running and manage them accordingly.

I hope you enjoyed this week’s Wise Up Wednesday.

If you are in any doubt about whether or not the terms and conditions are onerous you need to take professional advice and StreetwiseSubbie’s Nationwide Network of Consultants are experts in helping you to deal with such matters. If you need help, you can call us for initial free advice on 01773 712116.