Payment machinery
Construction projects and payment issues seem to go hand in hand. But the commonplace nature of late payment or non-payment shouldn’t be used to downplay their significance for contractors or subcontractors. In an industry where margins can be tight and cash flow delicately balanced, delays or shortfalls in payment can put any business under enormous pressure.
We deal with claims for payment all the time. If you want cash in the bank – whether you’re using a JCT contract, an NEC contract, or a bespoke contract – it’s important to make sure you follow the statutory and contractual requirements for applications and payment notices. With thousands of claims under our belt, we can advise you on how best to recover the money you’re owed.
For a confidential and free discussion, call us today on 01908 414990. Alternatively, email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.
How Does Payment Work In A JCT Contract?
The JCT suite of contracts set out a comprehensive mechanism for payment. In most contracts, this is found in clause 4.
The payment provisions of the JCT contracts allow for:
- Interim or staged payments
- Advance payments (with advance payment bonds as security)
- Final payments (when the final account is settled)
The IVD System For Interim Payments
In 2016, the JCT introduced the concept of an ‘Interim Valuation Date’ (IVD). This is built into all JCT contracts and subcontracts and is designed to streamline the payment process and align cash flow across the contractual chain, throughout the life of a project. It seeks to make sure that everyone down the chain, from the main contractor to sub-subcontractors, is paid within the same 30-day period.
As work progresses, the payment cycle is based on interim certificates, which are issued on a monthly basis.
By law, due dates for interim payments must be fixed. In a JCT contract, the starting point is your contract particulars. There you will find specified the ‘Interim Valuation Date’.
Each party (sub-subcontractors, subcontractors, and the main contractor) needs to make an application for payment, stating the sum it considers will be due as of the due date and how that sum has been calculated.
The subcontractor should make its application 4 days before the Interim Valuation date, and the sub-subcontractor 4 days before that (8 days in total before the IVD).
The due date differs depending on your position in the contractual chain:
- Contractor: 7 days after the IVD
- Subcontractor: 12 days after the IVD
- Sub-subcontractor: 17 days after the IVD
Following the due date, there is then a 5-day period for the contract administrator to issue an interim certificate.
From each monthly IVD, final dates for interim payments are as follows:
- Contractor: 21 days after the IVD
- Subcontractor: 26 days after the IVD
- Sub-subcontractor: 30 days after the IVD
If the employer intends to pay less than the sum stated as due in an interim certificate or payment notice, it must notify the contractor in a ‘pay less notice’. This must be issued not later than 5 days before the final date for payment.
How Does Payment Work In An NEC Contract?
As with a JCT contract, payment in an NEC contract is payer led. The payer must issue a Payment Certificate. This counts as a ‘payment notice’ under the Housing Grants, Construction and Regeneration Act 1996.
The key date is the ‘assessment date’. This is set by the Project Manager. Subsequent ‘assessment dates’ will be at whatever intervals are stated in the contract. Often, these will be on a monthly basis, falling on the same calendar day.
To get paid as a contractor, you have to do work for which payment is due. At each assessment date, the ‘amount due’ is assessed by the Project Manager.
The Timescales For Payment
- Before the assessment date, the contractor should make an application explaining what it believes is the amount due.
- The Project Manager then undertakes their own assessment. Within one week of the assessment date, he/she should certify the payment.
- Unless changed by amendments to the contract, payment should be made within 21 days of the assessment date.
- If the client wishes to pay less than the certified amount, it needs to notify the contractor no later than 7 days before the final date for payment.
If payment is late, interest should be paid on the late payment. This is assessed from the date the late payment should have been made until the day it is actually made.
What Can Go Wrong?
Difficulties can arise when contractors fail to make an application before the assessment date, or when dates are changed in the contract to allow for payment periods much longer than 21 days.
Even if you have used an NEC contract before, it’s sensible to protect yourself by taking expert legal advice on the precise mechanics of a new contract
Altion Law are specialists in advising and representing parties on commercial construction contracts, claims and disputes.
For a confidential and free discussion, call us today on 01908 414990. Alternatively, email us at Hello@altion-law.co.uk or complete our Free Enquiry Form and we will call you back.
