Construction & Engineering Update – Summer 2016

    View Authors June 2016
    “Payment Notices 20 Years On…”

    Welcome to our Client Briefing for Summer 2016. In this edition we reflect on 20 years of payment notices. Payment notices became a feature of the UK construction industry following the enactment of the Housing Grants, Construction and Regeneration Act 1996 (as amended by the Local Democracy, Economic Development and Construction Act 2009). One of the intentions of this legislation was to ensure that “construction contracts” (as defined) included adequate mechanisms for payment to respond to the generally poor payment practices which then existed in the industry. 
    In this Briefing we offer a brief recap of the statutory payment requirements, particularly in terms of the process, we focus on some recent cases dealing with payment notices as considered by the courts and we suggest some points for parties to consider when dealing with the often tricky question of negotiating and agreeing payment processes in construction contracts. 

    In many ways it is surprising that a number of cases continue to come before the courts where the disputes are based on failures in a procedure which has been substantially the same for two decades. We cite some recent examples, such as parties failing to give payment notices and pay less notices on time, and parties agreeing payment provisions that simply do not work. 

    The legislation is often criticised for being unclear, even with the 2009 amendments. While that is arguably so, in our experience parties tend to get into difficulty because they are not aware of the requirements of the legislation, how it affects all “construction contracts” in England and Wales, i.e. contracts for “construction operations” (which are widely defined), and the fact that exclusions only apply in limited circumstances. This demonstrates that parties should always take advice when dealing with contracts where construction operations are to be carried out. 

    Fortunately perhaps, it seems the current approach of the courts is to seek to be proactive and try to make faulty contracts work and bring them in line with the requirements of the legislation. A far better position is, however, to minimise the scope for disputes by having a properly drafted contract to begin with. 

    Payment clauses are just one area where specialist input is recommended to ensure that engineering and construction contracts are clear and properly comply with the requirements of the legislation.