“It was expected that the parties would adopt common sense with respect to billing and payment arrangements.” LDEDC has introduced a new payment system. Previously, only the payer could send a message indicating how much he was entitled to. Under the new provisions, the contract may specify who announces the due date. This may be: 2.1 The contract stipulates that the due date for interim payments is seven days after the interim assessment date or seven days after receipt of the payment request if the claim was made after the interim assessment date. Although the Court characterized this solution as firm law, it concluded that lead counsel could not find an authority that dealt with “the interaction between an inadequate mechanism of regular and provisional payment and paragraphs 1 to 7 of Part II of the regime”. The court also rejected the suggestion that the absence of an explicit due date or payment deadline in the contract after the “signature” resulted in non-compliance with the Construction Act 1996. Instead, the court suggested that such details were not required in such a contract (“the amount was payable at the time of completion”) and emphasized that the parties were expected to adopt common sense with respect to billing and payment terms. As you know, there are many payment terminologies, so we will provide a glossary of commonly used terms on next week`s blog. The Court also provided useful guidance on the functioning of the defaults, which would have been included in the contract under the works contract regime[iii] if the terms of payment agreed by the parties had not complied with the legal requirements. The contract shall provide for a progressive payment or interim payments and shall lay down the detailed rules for calculating the amounts due. If no payment schedule has been agreed, monthly interim payments are the default item. We found that Stage 2 and 3 payments are not final payments or payments under an exempt contract and therefore paragraphs 5 and 6 are not relevant.

Similarly, milestone payments were not the “method of payment referred to in paragraph 2” (i.e., payments based on the “value of the work performed”), meaning that paragraph 4 would not be relevant. Consequently, by means of an elimination procedure, the Court concluded that if steps 2 and 3 had not been complied with, only Part II, paragraph 7, of the scheme should have been implied. If the parties have not set the last date of payment of the amounts due, the system provides that the end date of the payment by the payer is 17 days after the due date of the payment. Welcome to this 12-week Q&A series on payment for construction contracts. Payment is a topic on which we receive many requests and a topic on which the parties can often be wrong. Over the next 12 weeks, we`ll walk you through a few common questions and provide you with easy-to-understand answers. The Court highlighted the difference between Part I of the Scheme (in terms of case law) and Part II (which deals with payment provisions) and noted that while Part I applies in its entirety (or “Lock, Stock and Barrel”[v]) where the contract does not contain appropriate decision-making provisions, Part II can only be included in a contract to the extent that: what is necessary to achieve what is required under the Construction Act 1996 [vi]. Although the Court characterized this solution as firm law, it concluded that lead counsel could not find an authority that dealt with “the interaction between an inadequate mechanism of regular and provisional payment and paragraphs 1 to 7 of Part II of the regime”. 4.1 The employer (the paying party) should also issue a notice of compensation below compensation if it intends to pay less than the amount specified in the notice of payment/notice of late payment. If no notification of payment is issued less, the amount to be paid will be the one indicated in the payment request/reminder.

3.1 Under the Agreement, the employer (the paying party) has five days after the payment request to send a notice of payment to the Contractor (the Recipient). This can also be called a provisional certificate. The payment request must indicate the amount it considers due and on what basis it will be calculated. It is important that a payment notice is issued, even if the amount due is zero. If the payer does not do so, he must pay the amount specified in the payment request. In Bennett (Construction) Ltd v. CIMC MBS Ltd (formerly Verbus Systems Ltd)[i], the English Court of Appeal held that a construction contract providing for milestone payments upon “approval” contained an appropriate payment mechanism in accordance with the Construction Act 1996[ii]. Notification must be made no later than 5 days after the due date of payment.

In all cases, it must indicate the amount that the person issuing the notification considers to be due or payable on the due date of payment, as well as the basis on which the amount is calculated (see s110A). It is “irrelevant” that the amount due is zero, a termination has not yet been made. Payment under the Construction Act – The Housing Subsidies, Construction and Regeneration Act (Construction Act) contains provisions to ensure that payments are made regularly and in a timely manner throughout the supply chain. 6.1 Under the contract, interim payments will be continued at monthly intervals until the due date of the final payment. The due date of the final payment is one month after the last of the three triggering events; (1) the end of the correction period, (2) the date of completion of the correction or (3) the date of submission of the final declaration. Again, it does not matter that the amount that the payer considers to be due is zero; the notice of termination has not yet been given. The parties may agree in the contract how long before the end date of payment a notice period must be made, but if they do not agree, the period in the scheme applies to construction contracts (7 days before the final payment date). LDEDC also prohibited payments from being subject to the performance of obligations under another contract or to a decision by an individual as to whether obligations under another contract have been fulfilled. Therefore, a contractor cannot make payments to its subcontractors conditional on the employer certifying its own payments as due under the main contract. Construction contracts are governed by the Housing Subsidies, Construction and Regeneration Act 1996, as amended by the Economic Development and Building Local Democracy Act 2009 (“the Act”), which requires certain provisions to be included in construction contracts. If your construction contract does not contain payment provisions in accordance with the law, the Scheme for Construction Contracts (Scotland) applies.

The scheme lays down the payment procedure to be followed for construction contracts. If the contract does not provide an adequate mechanism to determine the due date of payments and the date of payment, the “Construction Contract Rules” apply. The diagram is explained below. Important – if the contract allows or requires the payee (before the date on which the payee`s notification is to be made) to inform the payer or a specific person of the amount that the payee considers due and the basis on which that amount is calculated, and the payee makes such a notification, e.g.in the form of a payment request, this must therefore be considered as a notification to the beneficiary and becomes what is known as a “late payment reminder” and the beneficiary can no longer make a notification. 2.2 The parties may agree on the due date or how it is to be calculated, otherwise the provisions of the system apply. Under the plan, the due date is the later of seven days following the expiration of a relevant time period, which would be monthly interim payment dates, or if the contractor makes a claim for payment (and submits their claim for payment). The Act (see section 109 of the HGCR Act) authorizes the recipient to make payments for all work under the contract, unless: 1.1 The agreement requires the contractor (known as the recipient) to submit a claim for payment. The claim for payment must indicate the amount targeted by the contractor and how it was calculated. The Economic Development and Building Local Democracy Act, 2009 (“CDSA”) introduced amendments to the Construction Contracts Payment Act for contracts entered into on or after October 1, 2011.

For the purposes of this blog series, in which we must refer to the terms of a contract, we assume that the contract is an unchanged SBCC 2016 design and construction contract (“the Agreement”). 5.3 If the Payer does not make the payment by the deadline, the Recipient may give seven days` notice that it intends to suspend the service. The beneficiary may also refer any dispute concerning payment to the decision. For more information on the arbitration process, please read our arbitration blog series. In addition, there are special provisions regarding payment procedures. The payer must issue a notice of payment within five days of the payment due date, even if no amount is due. If one or more of these minimum requirements are not met and/or if no agreement has been reached on the conditions, the relevant parts of the system for works contracts enter into force as a “standard mechanism”. 4.2 In the contract, the payment indemnity must be paid no later than five days before the end date of the payment and the payer still has to pay the amount he accepts, is due on the last date of payment. . . .