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construction contract and commercial consultants

The new ‘Construction’ Act – payment, one year on.

The Local Democracy, Economic Development and Construction Act 2009 (the ‘new’ Construction Act) has been in force and regulating payment under many construction contracts for just over a year at the time this article was written.

In that year it seems that most companies have fallen into two camps; those that are aware of its existence and have used it either to properly establish a right to payment or make it difficult for the other party to establish such a right, or those companies that have no idea of its existence or how it works and have simply carried on as usual.

The problem with the latter camp is that carrying on as usual may not be enough to establish a right to payment as, under the Act, no such right to payment exists in the absence of a properly compiled and timely issued payment notice issued by one party to the other.

In simple terms, no notice, no payment.

The problem with the former camp is that it is possible for a payer (the party paying the money) to draft apparently Act compliant payment terms such that the payee (the party receiving the money) can never establish a right to payment. Whilst such terms may be legally correct, there is no doubt that they go against the spirit of the Act and for that reason adjudicators and the courts will likely find a way to make such terms unenforceable. We wait for the first cases to clarify that point.

Finally, the problem with the entire mechanism is it will only assist to establish a right to payment, it does little to help secure that payment; that is a matter for adjudication or other legal means. However, in today’s economic market, many companies are fearful of commencing such proceedings in the knowledge that in doing so will no doubt mean being denied future opportunities by the other party.

There is no easy answer; however, using the procedures set out in the Act to properly establish your right to payment will greatly increase the likelihood of payment without resorting to expensive adjudication.

A further article (which you can read by clicking here), explains those procedures in more detail; alternatively, contact us for more information.

Written by Steven Evans who is a construction contract and commercial expert.

This article is for general information purposes only and should not be relied upon in any specific situation without appropriate legal advice. If you require that advice or wish to discuss any of the issues raised in this article, please contact us.