London | Bristol | Dublin | Dubai · Under English law a genuine bystander has no duty to warn. However, on a construction project a general duty to warn arises in relation to any

London | Bristol | Dublin | Dubai

7 October 2015

Construction Law Update:

Payment – Getting Notices Right

and Getting Paid

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Introductions:

Andrew Croft, Associate

Projects and Construction

Stephen Milne, Associate

Projects and Construction

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Late Payment – remains a key issue

Previous Webinar - 11 February 2015 - Tackling Late Payment.

Legislation, e.g. Payment Practice Regulations – April 2016.

Prompt Payment Code.

Construction Supply Chain Payment Charter (note popularity!).

Late payment remains a key issue.

Over 10 reported cases in the TCC in the last year considering the Construction Act.

Complying with the Construction Act and contract - key to securing payment.

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Outline

Payment under the Construction Act – Recap.

Review typical payment process.

Key points in relation to:

– Applications for payment;

– Payment Notices;

– Pay Less Notices; and

– Adjudication following non payment.

Enforcing adjudication.

Practical tips for securing payment.

A new approach to tackle late payment?

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Payment under Construction Act - Recap

Construction Act 1996 amended by LDEDC Act 2009 (“the Act”).

Statutory payment, suspension and adjudication regimes.

Due Date and final date for payment for any sum which becomes due.

Regime for providing payment notices, by payer (client) or payee (consultant) not

less than 5 days after due date.

If the client required to issue the payment notice but does not:

– payee notice before client’s payment notice due may be a “default payment notice”; or

– payee may issue a “default payment notice”. Final date for payment is postponed between

deadline for payment notice and submission of default notice.

If no valid notice – payment may not be due under the Act.

Framework for obtaining payment.

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Payment due

date

Pay less

notice

Final date for

payment

Typical payment procedure

Payment

notice

Application

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Does the Construction Act apply?

Application for payment (if any).

Payment Notice:

– Content;

– Timing;

Pay Less Notice.

Adjudicating for non payment.

Enforcing Adjudication.

All considered by the TCC in the last year!

Keys to Payment Entitlement

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When does the Construction Act apply?

Is your contract a “construction contract”?

Contract for “construction operations” in England and Wales

The “operations” must “form part of the land”.

More than just “fixture or fitting”.

Is the system “sufficiently attached”? 2000 bolts = yes .

Savoye & Savoye v Spicers [2014].

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Applications for Payment

How do applications fit in to the Construction Act?

Could be either a:

– Payment notice; or

– Default payment notice.

Application must comply with the Contract (Henia Investments v Beck [2015]).

Submit applications:

– On time (Leeds v WACO [2015]);

– Containing the correct information (including claim for payment!) (Caledonian Modular v Mar

City [2015]).

Make clear that it is a payment notice (or a default payment notice).

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Content of Payment Notices

“If they intended to serve a valid payee's notice …they could and should have said that

that was what they were doing”

Caledonian Modular v Mar City [2015]

If serving a payment notice state that it is a payment notice in:

– the notice; and

– any covering letter/email.

Calculate amount due in accordance with the contract (Henia Investments v Beck

[2015]).

Provide back up.

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Timing

What if payment notice/application is late?

May not be effective if:

– contract provides for periodic valuations; and

– makes clear that no sum is due unless notice is on time.

Could be default payment notice?

Is it better to be early than late?

Usually, provided that the notice/application:

– relates to the right “due date”; and

– is consistent with payment cycle.

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What if no payer payment notice/pay less notice?

Deemed to have agreed the value stated in any application/payment notice (ISG v

Seevic [2014]).

Amount in application/payee payment notice must be paid by the final date for payment.

Employer cannot start a second adjudication to determine the value at the date of an

application…

…..BUT employer can challenge the value of work in the next (or later) application

(Galliford Try v Estura [2015]).

Pay less notice can include and allow deductions and other set-offs Employer is entitled

to make or claim (Henia Investments v Beck [2015]).

If no payer payment notice or pay less notice – take swift action!

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Will an adjudicator’s decision be enforced?

Courts reluctant to interfere with an adjudicator’s decision.

Will not “reopen” a dispute.

Broughton Brickwork v F Parkinson [2014].

Adjudicator overlooked document showing payment notice served by e-mail.

Would have meant served on time.

Not ground for refusing enforcement as parties did not bring document to his attention!

Shows importance of clearly presenting your case.

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When might enforcement be refused?

Breach of natural justice.

Lack of jurisdiction.

If enforcement would cause “manifest injustice” may be stayed.

Galliford Try v Estura [2015].

Stay granted due to risk of “irreparable prejudice” if enforced.

Employer’s inability to pay one factor.

Consider Employer’s financial position before adjudication/enforcement.

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What if you disagree with the adjudicator’s decision?

Adjudication binding until dispute “finally determined”.

Aspect Contracts (Asbestos) Ltd v Higgins Construction plc [2015].

If adjudicator awards sums to be payable implied term that those sums can be

recovered if subsequently found not to have been due.

Losing party had 6 years from “wrongful overpayment”.

Consider contractually agreeing the limitation period for adjudication.

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Practical Tips

Make sure it is clear which contract applies.

Understand your route to payment at the outset.

Follow each payment cycle carefully.

Don’t be afraid to be “contractual”.

Flag up behaviour which is not compliant with the Construction Act.

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Practical Tips (Cont.)

Consider your standard invoices/applications – are they Act compliant?

Be ready to take prompt action if the Employer has failed to issue the correct notice.

Consider tiered “decision tree” to recover late payment, from “strong letter” to formal

proceedings.

Is the Employer in breach of any payment charter?

Take legal advice before suspending performance or adjudicating.

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A new approach to tackle late payment?

Rob Driscoll, Building and Engineering Services Association

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3m Jobs = 10% employment

£90bn = 6.7% of economy

280K Businesses (99.9% SMEs

(83% 1 person)) UK Construction

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Tier 1 Contractors - design, management and coordination

Tier 2 Contractors -design, management and coordination - typically 25% of Tier 2 contracts on large contracts with a value in excess of £15 million, were for values below £10

FRAGMENTATION

Tier 3 Contractors - design, management, coordination and delivery

Tier 4 Contractors - delivery

Tier 5 Contractors and Suppliers - material producers, plant hire businesses and intermediaries

Project

Bank

Account

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61% 16%

23%

Would 'Digitising' the Payment Process be beneficial?

Yes

No

Don't know

Average Percentage added to

bids to cover Late

Payment?

4% Average Percentage

discounted by to receive

Early

Payment?

2.3%

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24 Ministerial departments

22 non ministerial

348 agencies and other bodies

70 high profile groups

12 public corporations

3 devolved administrations

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Reducing the impact of regulation on business

Creating an exceptional civil service - less bureaucratic and more skilled, digital and unified

Helping government departments improve their efficiency and performance to save the taxpayer money

Transforming government services to make them more efficient and effective for users

Buying and managing government goods and services more efficiently and effectively

Improving the transparency and accountability of government and its services

Spending taxpayers' money responsibly

Making local councils more transparent and accountable to local people

Reducing the deficit and rebalancing the economy

Using Industrial Strategy to help the UK economy and business compete and grow

Construction 2050

Digital by Default

Industrial Strategy

Value for Money

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Physically exchanged documents

Slow turnaround

Missing, incomplete or inaccurate

Significant potential for errors

Calculations, carry-forward

Incorrectly completed forms

Significant data entry

Mismatched pay apps, invoices, and payments

Lack of clarity and visibility

Poor oversight into project status

Opportunity for disputes and mistrust

The current, largely manual process . . .

Risky;

Costly and Inefficient;

Lacks visibility & control.

. . . fails to connect all your project participants and your supply chain.

Disputes and Mistrust

Late Payment of Subcontractors

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https://m.box.com/shared_item/https:/texturaeuropelimited.box.com/s/ihzk933qojl2wvh8jlsldw0di5mhf4fa

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London,

UK

Munich,

Germany

Moscow,

Russia

Pittsburgh,

PA

Phoenix,

AZ

Chicago, IL (Head

Office)

Des Moines,

IA Reston,

VA

Bountiful,

UT

£1.5 billion payments

every month

1.5 million+ payments executed 16,000+

projects worth £100+ billion

Melbourne,

Australia

Over 80,000 Contractors Worldwide

3 million electronically-

signed documents

Over 25 patents worldwide

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Summary

Late payment remains a key issue.

Complying with the Construction Act key to establishing entitlement.

Understand the payment process in any contract at the outset.

Follow the contractual payment cycle.

Know your rights and obligations under the Construction Act.

New approaches may help tackle late payment.

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Next Webinar – Duty to Warn

Under English law a genuine bystander has no duty to warn. However, on a

construction project a general duty to warn arises in relation to any danger one ought

to be aware of and about which he could reasonably be expected to warn.

Recent case law has considered the duty to warn. What is the extent of your duty?

Join us for a webinar on Nov 12, 2015 at 1PM when Will Buckby (Partner) and Simii

Sivapalan (Solicitor).

If you would like to attend the webinar or for further information, please email

[email protected].

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Any Questions?

Andrew Croft

[email protected]

+44 (0) 20 7469 0412

Stephen Milne

[email protected]

+44 (0) 20 7469 0214

mailto:[email protected]






Documents

London | Bristol | Dublin | Dubai · Under English law a genuine bystander has no duty to warn. However, on a construction project a general duty to warn arises in relation to any