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Late payment will it ever change?19 Nov 2014

Late payment has hit the headlines again with the Labour Party proposing amendments to the Small Business Enterprise and Employment Bill that include more stringent regulation on corporations paying late.

The construction industry has had many years experience of late payments and in particular despite recent changes to the Construction Act, Sub-Contractors, in particular, still continue to suffer the most. Recent research suggests that 89% of over 200 sub-contractors surveyed have to wait over 30 days to receive payment from Main Contractors on private sector works.  For public sector contracts, 92% of respondents reported they were paid in 30 days or more.

Late payment can be a major factor in the running of Sub-Contractors and small contractor’s businesses. Late payment can inevitably lead to disputes and ultimately if the Contractor is unable to fund the projects, delays to projects or contract default.

The Supply Chain Payment Charter launched by the government earlier this year, sets out 11 “fair payment commitments”. These include a commitment to reduce payment terms to a supply chain to 30 days from January 2018. The charter also sets out stages before this: terms of 45 days from June 2015, and 60 days with immediate effect.  However, will the larger companies find clever ways around these recommendations in order to benefit their cash flow. The current legislation makes provisions for contracting parties to agree the periods for payment and the upper hand is always with the paying party to agree to their terms.

There is a big difference to what each party want for their payment terms and it is common knowledge that late payment can cause many sub-contractors and contractors to become insolvent. When paying out for plant labour and materials, on a weekly basis, 90 day payments can easily break a business.

But are there steps to take to avoid these situations?

In our experience, the contract terms have to be fully understood and agreed at the outset. It is not uncommon for  smaller or specialist contractors to find that Standard Form Contracts have been amended incorporating a convoluted payment mechanism which only becomes apparent after they’ve signed up to project, for only to discovery that the payment terms are different to what they had understood them to be.

So what can you do when you’re not getting paid? Firstly you need to find out why. Have the payment terms been breached; if they have there are remedies to recover the amounts due. The Construction Act makes provision for breach of the payment terms and if it can be demonstrated remedies can include interest on non payment and/or suspension of the works.

If the payment terms have been complied with, are there any other reasons for non payments?  Notwithstanding, the contractual payment period, is there a reason why you are not being paid the amount applied for. Is it a method of valuing the contract works, is it variations not agreed or could it be non payment for delays and disruption on the project.

Where there are differences relating to the valuation of the contracted works or variations arising out of changes, a second opinion is often worth considering in order to satisfy yourself that either how you are valuing the works are correct or whether you are entitled to be paid for the work in the first place.

Are you waiting to get paid? Has there been a dispute?

Contact us today on 01727 861510 for a free consultation. At Lindford Consulting, we’re here to resolve disputes and put in place systems to avoid them.


Image courtesy of Stuart Miles, www.freedigitalphotos.net

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