Construction Act Payment Timetable

Managing cash flow is one of the most critical aspects of running a construction project. Ensuring timely payments is essential not only for the financial health of a construction company but also for keeping projects on track and avoiding costly disputes. In England and Wales, the construction industry is governed by the Housing Grants, Construction and Regeneration Act 1996, commonly referred to as the Construction Act. This legislation sets out a clear framework for payments within construction contracts and provides mechanisms for resolving disputes if payments are delayed or withheld.

At Blackstone Solicitors, we understand the importance of staying compliant with the Construction Act while protecting your financial interests. This article explores the payment timetable outlined in the Construction Act and provides guidance on how construction companies can navigate the process effectively.

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Overview of the Construction Act

The Construction Act was introduced to address the challenges many contractors and subcontractors face with delayed or withheld payments. It applies to most construction contracts, whether written or oral, and governs both private and public sector projects.

The key objectives of the Act are to:

• Facilitate prompt and predictable payments within the construction supply chain.
• Provide a statutory right to suspend work if payment is not made on time.
• Introduce a right to adjudication as a quick and relatively inexpensive method of dispute resolution.

One of the most important features of the Act is its focus on a clear payment timetable, ensuring that all parties understand when payments are due and what happens if those payments are delayed or disputed.

Key Terms Under the Construction Act

Before delving into the payment timetable, it’s important to familiarise yourself with a few key terms that the Construction Act relies on:

• Payment Notice: A notice issued by the payer (typically the client or contractor) specifying the amount they believe is due and how it was calculated.
• Payee: The party receiving the payment (often the contractor or subcontractor).
• Payer: The party responsible for making the payment (typically the client or main contractor).
• Pay Less Notice: A notice issued by the payer stating their intention to pay less than the amount claimed by the payee, along with the reasons for doing so.
• Due Date: The date on which the payment becomes due as agreed in the contract.
• Final Date for Payment: The latest date by which payment must be made.

Understanding these terms is crucial for ensuring that your construction contracts comply with the statutory requirements and that you follow the correct procedures for managing payments.

Payment Timetable Under the Construction Act

The Construction Act establishes a mandatory payment timetable for construction contracts. If the contract does not specify a timetable, the Act’s default provisions will apply. A typical payment process under the Construction Act involves the following steps:

1. Application for Payment

The first step in the payment timetable is for the payee (typically the contractor or subcontractor) to submit an application for payment. This document sets out the amount the payee believes is due for the work completed during a specified period. The application should include sufficient details to justify the payment, such as a breakdown of the work carried out, materials used, and any other costs incurred.

Many construction contracts require the payee to submit this application by a specific date each month. If the contract does not set out such terms, the parties must agree on a regular payment cycle to avoid disputes.

2. Payment Notice

Once the application for payment is submitted, the payer (usually the client or main contractor) must issue a payment notice. This notice must be served within the timeframe specified in the contract, which is usually within five days after the due date for payment. The payment notice must clearly state:

• The amount the payer intends to pay.
• The basis on which that amount has been calculated.

If the payer fails to issue a payment notice, the payee’s application for payment is deemed to be the correct amount due, meaning the payer may be liable to pay the full amount claimed.

3. Due Date

The due date is the date on which the payment becomes due. This date is typically agreed upon in the construction contract and usually coincides with the submission of the payee’s application for payment or a regular monthly milestone.

The contract should specify how the due date is determined, but if it does not, the Construction Act imposes default rules. For instance, the due date is set seven days after the relevant period for which payment is claimed, usually on a monthly basis.

4. Pay Less Notice

If the payer believes that the payee’s claim is too high or disputes certain elements of the work, they must issue a pay less notice. This notice must be issued no later than the period specified in the contract before the final date for payment (typically seven days before). The pay less notice must:

• Specify the reduced amount the payer intends to pay.
• Provide a detailed explanation of why the reduction is being made, including how it is calculated.

Failure to issue a pay less notice within the required timeframe means that the full amount claimed by the payee must be paid, regardless of any disagreements.

5. Final Date for Payment

The final date for payment is the deadline by which the payment must be made. It is typically agreed in the contract and must allow enough time for any pay less notice to be issued, if applicable. The final date for payment is often 14 days after the due date, although the exact timing depends on the contract terms.

If the payer fails to make the payment by the final date, the payee has the right to pursue legal remedies, including suspending work or referring the matter to adjudication.

Remedies for Late or Non-Payment

If the payer fails to make the payment by the final date for payment, the payee has several options to protect their interests. The Construction Act provides the following remedies for late or non-payment:

1. Right to Suspend Work

One of the most powerful rights available to contractors under the Construction Act is the right to suspend work. If the payer fails to make payment by the final date, the payee is entitled to suspend all or part of their work until payment is made. This right is available without the need for court proceedings and provides contractors with leverage to encourage prompt payment.

Before suspending work, the payee must give at least seven days’ notice to the payer, specifying their intention to suspend work due to non-payment.

2. Right to Adjudication

The Construction Act introduces a statutory right to adjudication, which is a quick and cost-effective method of resolving payment disputes. If there is a disagreement over the amount due or if payment is withheld without proper justification, the payee can refer the matter to adjudication.

Adjudication allows the dispute to be resolved within a matter of weeks, providing a binding decision that the parties must comply with. This process is faster and less costly than traditional litigation, making it an attractive option for contractors seeking to enforce their payment rights.

3. Interest on Late Payments

Under the Late Payment of Commercial Debts (Interest) Act 1998, payees are entitled to claim interest on late payments. If the contract does not specify a different interest rate, the statutory rate of 8% above the Bank of England base rate will apply. In addition to interest, payees may also be entitled to claim compensation for the costs of recovering the debt.

Avoiding Payment Disputes

While the Construction Act provides a clear framework for managing payments, avoiding disputes in the first place is always preferable. Below are some best practices for construction companies to follow in order to minimise payment issues:

• Ensure Clear Contract Terms: Make sure your construction contracts clearly outline the payment timetable, including the due date, final date for payment, and any notice periods required for pay less notices.
• Submit Accurate Applications for Payment: Provide detailed, accurate, and timely applications for payment that clearly outline the work completed, materials used, and any other relevant costs.
• Maintain Clear Communication: Keep open lines of communication with the payer, especially if there are disagreements over the amount due. Address issues early to avoid disputes escalating.
• Document Everything: Keep thorough records of all work completed, correspondence, and any discussions related to payments. This documentation will be crucial if a dispute arises.

Conclusion

The Construction Act provides a clear payment timetable designed to ensure fair and prompt payments within the construction industry. By understanding your rights and obligations under the Act, you can better manage your cash flow, avoid disputes, and ensure that payments are made in a timely manner.

At Blackstone Solicitors, we specialise in advising construction companies on all aspects of construction law, including payment disputes and contract compliance. If you need assistance with drafting or reviewing your construction contracts, or if you are facing a payment dispute, our expert team is here to help. Contact us today for legal advice tailored to your specific needs.

How we can help

We have a proven track record of helping clients deal with construction law. We will guide you diligently and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of construction law services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/construction-solicitors/

How to Contact Our Construction Solicitors

It is important for you to be well informed about the issues and possible implications of construction law. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.

To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.

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