Starting construction works in the UK? Get familiar now with the payments’ provisions under UK legislative framework!

Starting construction works in the UK? Get familiar with the payments’ provisions under UK legislative framework!

Lord Denning: ‘There must be a cash flow in the building trade.

It is the very lifeblood of the enterprise’[1].

This article summarises the payment provisions under Part II of the Housing Grants, Construction and Regeneration Act 1996 (‘Act‘), as amended by the Local Democracy, Economic Development and Construction Act 2009 (‘LDEDC’).

For the past 22 years, the overall impact of the Act on the construction industry has been remarkable. As Sir Jackson highlighted ‘The payment regime and adjudication regime which that legislation introduced now play a critical role in the functioning of the construction industry… Overall the payment regime and the adjudication regime have been successful’[2].

The Act applies to most construction contracts, although some contracts such as the ones with residential occupier or where the works relate to mineral extraction or power generation are excluded.

In a construction contract, one party usually undertakes to carry out a defined work (referred in the Act as (‘Payee’)) while the other party undertakes to make payment (referred to as (‘Payer’)). Whilst the Act gives the parties to a construction contract the freedom to agree the sum to be paid, when to be paid, and any procedure to facilitate payment, it introduces changes of some importance to the construction industry.

  • It imposes a statutory set of contractual provisions which in default take effect as implied terms of the contract concerned.

Section 114 states that where a construction contract does not comply with the requirements of the Act in relation to adjudication and payment, the Scheme for Construction Contracts (England and Wales) Regulations 1998 (SI 1998/649), as amended in respect of construction contracts entered into after 1 October 2011 statutory scheme (‘Scheme’) will apply.

  • It gives an entitlement to stage payments.

A party to construction contract which is more, or agreed to be estimated at more, than 45 days is entitled, by virtue of section 109 of the Act, to payment by instalments, stage payments or other periodic payments for any work under the contract. The parties are free to agree the amounts of the payments and the intervals or the circumstances in which they become due.

  • It makes provision for the date when payments under a construction contract became due.

Section 110 of the Act states that a construction contract (1) shall provide an adequate mechanism for determining what and when payments become due; and (2) and shall provide for a final date for payment in relation to any sum which becomes due.

  • It deals with the need to give various notices during the project life cycle with the aim of proactively highlighting any payment’s issue and allowing early measures to deal with them effectively.

Section 110A to section 111 state that the contract must provide for a notice, which specifies the amount due and the basis of the calculation, to be given by either party (or by the Payer’s representative) to the other. The notice should be clear and unambiguous that it is  a payment notice.

If the Payer, or its representative, fails to provide the notice then the Payee is entitled to submit its notice instead. In which case the final payment date will be pushed back by the amount of time taken by the Payee to submit its own notice.

In the absence of an agreement as to the time of the notice submission, the Scheme will apply and the notice shall be given within five days of the payment due date.

The Act allows the Payer to correct the calculated amount in the payment notice by issuing a pay less notice. The pay less notice should set out the sums deemed due, should clarify the basis of calculation and should be submitted within the agreed period of time. In the absence of an agreement, the Scheme will apply and the pay less notice should be submitted seven days before the final payment date.

  • It provides a right to suspend performance for non-payment.

Section 112 of the Act entitles the Payee to suspend performance if the Payer fails to pay the sum due.

  • It prohibits conditional payment provisions.

Section 113 prohibits conditional payment on the performance of another contracts, such as the commonly known “Pay when Paid” clauses.

Whilst the HGRCA benefits praised by Sir Jackson are undeniable, many in the industry still argue that poor payment practices are increasingly impacting the construction industry. The rate of insolvency is still peaking, and the number of payments’ litigations is increasing.

The construction industry is in need, now more than ever, of a legislative intervention to further improve the payments practices.

I have called upon my decade’s long international experience in the construction field and highlighted several improvements that I will be sharing with you in the next article.

[1] Gilbert-Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd [1974] A.C 689
[2] S & T (UK) v Grove Developments [2018] EWCA Civ. 2448

Author:

Construction Solicitor

Hamza Sekkar

Partner & Director of Legal Engineering

 If you have any queries, please contact me on h.sekkar@sterlingstamp.com

Interested in Public Private Partnerships Check our article about: Public-Private Partnerships

Partenariat Public-Privé? Notre Expert vous parle de son importance

Partenariat Public-Privé? Notre Expert vous parle de son importance

Qu’est-ce qu’un Partenariat Public-Privé PPP?

Un contrat de longue durée entre une partie privée et une agence gouvernementale pour fournir un bien ou un service public dans lequel la partie privée prend des parts de risque et de gestion importantes. Les responsabilités du secteur privé peuvent inclure entre autres le financement, la conception, la construction, l’exploitation, la gestion et l’entretien du projet.

Avantages et inconvénients d’un PPP

Certes les coûts de développement, appel d’offres et fonctionnement des projets PPP peuvent s’avérer plus élevés que les processus de passation des marchés publics traditionnels. Cependant, les PPP offrent plusieurs avantages tels que :
  • Le contournement des contraintes budgétaires du secteur public en faisant appel aux ressources financières du secteur privé ;
  • L’utilisation de la technologie, l’efficacité opérationnelle et l’innovation du secteur privé pour délivrer des meilleurs services publics ;
  • L’exécution des projets dans les délais prescrits ;
  • La certitude budgétaire en fixant les coûts actuels et futurs des projets d’infrastructure ;
  • Le développement des capacités du secteur privé local en utilisant des joint-ventures avec des entreprises internationales ;
  • Le transfert des compétences du secteur privé (en particulier étranger) au secteur public ;
  • La diversification de l’économie ; et
  • L’optimisation des ressources à long terme grâce à un transfert de risque approprié vers le secteur privé.

Facteurs clés de réussite des PPP

Il est primordial d’adopter un cadre juridique PPP adéquat. Ceci permet non seulement d’identifier des projets réussis mais aussi d’encadrer ces projets de manière efficace et transparente, tout en s’assurant que les objectifs du développement sont atteints et que les investisseurs sont satisfaits. Cependant, un cadre Juridique PPP n’opère pas en silo ! L’adoption de lois PPP n’est pas un remède miracle en soi. Afin de donner de la crédibilité à leurs cadres juridiques PPP, les gouvernements doivent prendre des mesures claires et concrètes qui vont servir de catalyseur pour le développement de projets de qualité tels que :
  • Une formation pointue du personnel ;
  • Le développement des outils nécessaires pour faciliter les transactions et la rédaction des contrats types ;
  • Le choix de projets rentables économiquement et socialement pour attirer les investisseurs ;
  • Une définition claire des rôles et des responsabilités des parties prenantes tel que les institutions publiques, pouvoirs adjudicateurs et unités PPP ; et
  • Le choix de partenaires habilités à réaliser les services et les projets voulus.
Auteur :

Ihsane founder of Sterling Stamp

Ihsane Elidrissi Elhassani Fondatrice du Cabinet Sterling Stamp à Londres Ihsane a été à la tête du département juridique du centre financier du Qatar (‘QFC’) où elle dirigea le service de rédaction législative et représenta le QFC dans de nombreuses affaires et contentieux nationaux et internationaux. Elle a aussi accompagné le gouvernement du Qatar dans l’établissement d’un cadre juridique PPP. Vous pensez à rédiger ou améliorer vos lois, procédures et politiques PPP ? contactez-nous : i.elidrissi@sterlingstamp.com Check our latest Article about: Construction Work in the UK and the payments’ provisions under the the UK Legislative framework.

Proposed Reforms for Payment Provisions under HGCRA

Proposed Reforms for Payment Provisions under HGCRA

The Housing Grants, Construction and Regeneration Act 1996 (‘HGCRA’)[1], modifies the common law [2] principle that entitled the contractor to payment once substantial completion has been achieved. A party to a construction contract which is more than 45 days is entitled to payment by instalments, stage payments or other periodic payments for any work under the contract [3] .

However, The HGCRA does not impose a minimum period of time after which a payment needs to be made. The parties are free to agree on the amounts of the payments and the intervals or the circumstances in which they become due [4].slot deposit dana

Hence, the main contractor would be able to impose a long period of time before payment becomes due and payable, and consequently put pressure on smaller subcontractor’s cash flow.  The legality of this approach has been confirmed by the Technology and Construction Court which held that an adequate stage payment did not have to ensure instalment payments across the whole period of construction[5].

An analysis of Carillion’s balance sheets after its collapse, in January 2018, revealed such behaviours. Carillion was not an exception, as the tier one contractors have been found by the Department of Business, Innovation and Skills to be net receivers of trade credit from their subcontractors. In fact, the majority of contractors are Small and Medium Enterprises companies. They often act as subcontractors and are awarded contracts[6] based on the competitive tendering process. They often have little leverage on changing the length of payment cycles.

A possible reform would be to impose statutory maximum periods upon which payment becomes due and payable. An example of such statutory maximum periods can be found in The Public Contracts Regulations 2015 that imposes a duty to pay within 30 days of a sum becoming due on public sector contracts. To be effective, the proposed reform needs to have a set of regulations that imposes transparency on the payment terms for the parties to a construction contract, as well as penalties on the parties defaulting to issue timely payments. Such measures could resemble the one brought by the Reporting on Payment Practices and Performance Regulations 2017[7].

Whilst such reform requires additional cost and intervention in a contractual framework that is already regulated, it ensures frequent payments throughout the project’s supply chain and mitigates the risk of losing the money held by the contractors if they become insolvent before it is paid. Ultimately, it ensures that the client or main contractor will not use the subcontractor as creditor and that payments will be due frequently https://www.miroir-mag.fr/wp-content/slot-pulsa/ .

[1]Part II as amended by the Local Democracy, Economic Development and Construction Act 2009 (‘LDEDC’)
[2]Appleby v Myers (1867) L.R. 2 C.P. 651; Hoenig v Isaacs [1952] 2 All E.R. 176; Bolton v Mahadeva [1972] 1 W.L.R 1009
[3]Housing Grants, Construction and Regeneration Act 1996 s.109(1)
[4]Housing Grants, Construction and Regeneration Act 1996 s.109(2)
[5]Grove Developments Ltd v Balfour Beatty Regional Construction ltd [2016] EWHC 168 (TCC)
[6]Public Contracts Regulations 2015 Regulation 113(2)
[7]The Reporting on Payment Practices and Performance Regulations 2017

Author:

Construction Solicitor

Hamza Sekkar

Partner & Director of Legal Engineering

 If you have any queries, please contact me on h.sekkar@sterlingstamp.com

Read the Previous Article treating: The payments’ provisions under UK legislative framework

Interested in Public Private Partnerships Check our article about: Public-Private Partnerships