In contracts where the parties are entitled to interimpayments, under Section 109, they are free to agree (a) the amounts of suchpayments (b) whether instalments are to be made and (c) the intervals (paymentcycle) in which the payments are due. Under Section 110 of the 1996 Act everyconstruction contract must provide an adequate mechanism for determining (a)what payments become due and (b) when they become due and (c) a final date forpayment of any sum that becomes due.
The length of the payment cycle is 28 daysor duration specified in the contract. Ifthe contract does not comply with the provisions in the act, then a series ofdefault rules termed as the ‘1998 Schemes’ within the Act are applicable inEngland and Scotland. In addition, the Act provides for the service of variousnotices1 during a payment cycle which are to identify theamounts which may or may not be paid. The purpose of these notices is to highlight at anearly stage whether there will be any disputes in relation to payment andthereby allow steps to be taken to deal with them as soon as possible. The stepsin the course of the payment cycle are listed below; Theperiodic payments become due at the time set out in the contract, if thecontract does not provide for such a time, then the 1998 Scheme provides thatthe due date is seven days after the end of the last payment cycle or themaking of the claim by the payee. Under Section 110 of the Act, following thedue date, the contract must provide that a payer is to serve a ‘payment notice’which must be (a) served not later than 5 days after the payment due (b)identify the amount to be paid and (c) state the basis for the amount. Paymentought to be made by the final payment date unless the Employer has served a’withholding notice’, which must be served not later than prescribed periodbefore the final payment date or seven days before the final date forpayment. The section 112 of the act alsoprovides a right to suspend the works in the event of non-payment by payee.
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Theenactment of Part 8 of the ‘LocalDemocracy, Economic Development and Construction Act 2009′ (LDEDC) amendspayment cycle of the 1996 Act, these form the amended provisions. Theamendments have affected the (a) determination of payments due (b) noticesrelating to payment and (c) requirement to pay notified sum. A payment cannotbecome due based upon the performance under another contract, thus outlawing’pay when paid’ clauses. Theoperation of the payment cycle has been amended as below;(a) Thecontract must provide for a notice to be given either (i) by payer to the partybeing paid or (ii) the payee to the payer. (b) In absenceof any agreement, this notice must be given within five days of the payment duedate and specify the amount due and basis on which this is calculated. (c) If thepayer is to provide notice and fails to do so within the relevant period, thenthe payee is entitled to submit its own notice which will act as a substitutedversion of the original notice, the final payment date will be delayed by aproportionate time. (d) Thepayment must be made by the final payment date, subject to the provision of a’payless notice’ by the payer which must (i) set out sums deemed due by the payer(ii) basis for the amount and (iii) issued within the prescribed period or 7days before final payment date. If a valid payless notice is issued, the amountdue for payment becomes the amount on the pay less notice.
(e) Anydispute to an amount on either a payment or payless notice if referred to anadjudicator who determines that amount due is more than the sum in the notice,the final payment date is seven days after the adjudicator’s decision ororiginal final payment date. An alternate principle formulatedunder the common law is the ‘quantum meruit’, whereby a recipient of servicesor material benefit, the Employer is under an implied obligation to pay forthose services or other benefit. Where there is no provision in a buildingcontract to determine the final contract price, and no provision for pricingcontract variations or additions, the doctrine of quantum meruit may entitlethe builder to payment (reasonable sum) in respect of the cost of works executedby the builder2.However, the doctrine of quantum meruit cannot be relied upon if the contractbetween the parties contains either an agreed contract price3,or a mechanism for determination of the price. Before a claim founded onquantum meruit can be maintained by a Contractor, he must rescind the contract4,thereby establishing that the Contractor no longer considers itself bound bythe original contract price.
Conclusion In summary,it is cash flow which drives the construction industry, it is essential to havelegislation to reduce risks and allow the works to progress. Theprovisions in the HGCRA and LDEDC which facilitate the payment mechanism areadequate to ensure cash flow. The building contracts drafted with suitableprovisions and remedies will undoubtedly assist, especially if a realisticapproach is taken to the fact that construction projects encounter changes,which give rise to extra cost.
1 In Surrey and Sussex Healthcare NHS Trust vLogan Construction (South East) Limited 2017 EWHC 17 (TCC), the courtheld that the party providing the notice had to make sure that it was clear andunambiguous that the notice was a payment notice 2 Alexander Hall & Son (Builders) Ltd. v Strathclyde RegionalCouncil (1988) and Parkinson v. Commissioners of Works 1949 2K.B.
6323 Interbild Components Ltd. v. Fife Regional Council 1988 GWD 16 – 682.4 ERDC Construction v.
H M Love & Co., 70 Build L R 67; 1995 SLT 254.