Geoff BrewerGeoff BrewerSenior Managing Senior Managing

DirectorDirector

Brewer ConsultingBrewer Consulting

Contractors Payment Contractors Payment

ClaimsClaims

Obtaining payment and how the Obtaining payment and how the

market has changedmarket has changed

• Vital importance of payment

• Payment provisions – Contractual or Statutory

• Contract price dealt with differently by different

contracts

Contractual Payment Contractual Payment

ProvisionsProvisions

• Instalments provided for in most contracts

• Value of work properly carried out, stated in certificates

• Employer’s obligation to pay, subject to rights to

cross claim

• Contractual procedure to be followed

Improving Cash FlowImproving Cash Flow

• Mobilisation payments

• Working capital to get the ‘show on the road’

• Price discount negotiated by payer

• Surety bond required

• Less readily available in recession

• Manufactured goods and materials off site

• Optional payment provisions

• Popularity decreases when work becomes scarce

Improving Cash FlowImproving Cash Flow• Escrow accounts

• Assist in financial security for contractor

• Escrow has ring fenced funds for 2-3 months payments

• Escrow agent acts as stakeholder for both parties

• Contractual right to suspend or terminate employment

• Affected by lack of project funds

• Retention bonds

• Provided by Surety in lieu of retention

• Optional in JCT contracts

• Some increased administrative burden on contractor

• Government drive to ban retentions

Improving Cash FlowImproving Cash Flow

• Recovering interest on late payment

• Payment of interest in some standard forms

• Statutory ability to claim interest where no contractual

provision

• Late Payment of Commercial Debts (Interest) Act 1998

• Used in dispute resolution proceedings

• Ownership and title in materials

• Contractual provisions to reduce exposure in event of third party insolvency

The Construction Act andThe Construction Act and

Sections 110 & 111Sections 110 & 111

• The Construction Act

• Applies to every construction contract for purposes of

construction operations

• Specific payment provisions required

• Failure to provide imports the Scheme

• Interim and stage payment provisions

• Adequate mechanism - Final date for payment

• Parties free to agree periods

• Scheme provides for 28 day intervals, a set valuation method

and 17 day period between due date and final date for

payment

Statutory Payment Notification Statutory Payment Notification

(Section 110)(Section 110)• The Act requires payment notice no later than 5 days after

due date

• Most standard forms keep to 5 days

• Effect of failure depends on contract terms

• Considered to be ‘without-teeth’

• No sanction for failing to provide notice

• Receiving party entitled only to be paid what is properly due

Withholding Notice (Section Withholding Notice (Section

111)111)• The Act requires a withholding notice where withholding

from an otherwise due amount

• No maximum or minimum period stated in the Act

• Under the Scheme, period for issue is not later than 7 days

before the ‘final date for payment’

• Compliant clause could state not later than 1 day

• Withholding notice required where set-off is to be withheld

• May be necessary where abatement is to be taken into

account

Suspension for nonSuspension for non--paymentpayment

• Statutory right where payment not made by final date for

payment (Section 112)

• Default position provided by the Act

• Procedure must be followed

• Ensure relevant conditions are satisfied before suspending

• Extension of time for period of direct delay caused by valid

suspension

Variations and Delay MattersVariations and Delay Matters

• Variation clauses are standard fare

• Commonly changes are not permitted which ‘go to the root of the contract’

• Definition and procedure for issuing of variations varies from contract to contract

• Recovery without written variation orders

• Condition precedent clauses

• Adhere to contract mechanisms

• Valuation procedure

• Must obtain maximum value within rules of the contract

Delay MattersDelay Matters

• Project delays and categorisation of events

• Extension of time provisions

• Subject to procedures and proof

• Condition precedent clauses

• ‘Upfront’ mechanism to allow additional time

• Time is money

• Must be able to recognise, claim, demonstrate and fully

evidence entitlements

• Delay analysis trends

• Content and quality of information

• Vigorous pursuit in economic downturn

Payment Regime Payment Regime –– Likely Changes in Likely Changes in

20092009• Proposed amendments to the Construction Act• Draft Construction Contracts Bill 2008

• Improve transparency and clarity relating to payments

• Encourage adjudication by widening Act’s ambit

• Improve suspension rights

• Changes to payment regime

• Replace existing sections 110 &111

• New S110A payment notice setting out ‘sum due’

• Can take account of cross claims

• New S111 notice

• Clarifying the use of pay when paid clauses

Payment Regime Payment Regime –– Likely Changes Likely Changes

in 2009in 2009

• Section 110A notice

• Not later than 5 days after payment due date

• Payee can issue payment notice in default

• Section 111 notice

• Provides second opportunity for payer to consider and apply cross claims

Likely Changes in 2009Likely Changes in 2009

• Adjudication provisions

• Widen access - adjudication permitted on oral and partly oral/ partly written contracts

• Prevents agreements that interim payment decisions will be conclusive

• Parties costs agreement can only be made after adjudicator appointment

• Improve and reinforce suspension rights

• Suspending party can claim costs and consequential delay