A game of patience

As inequitable as it may seem, a contractor should devote time and effort to the task of getting paid and install procedures to monitor receipt of payments.

It is essential to submit payment applications by the required dates. Often under a main contractor’s own terms and conditions, submitting an application at a specified time is a condition precedent to paying.

In such cases, receipt of the application triggers the start of the payment mechanism, so failure to submit an application would remove the duty to pay.

To maximise interim payment for variations, a detailed description of the operations required to carry out the work should be submitted, especially if the work does not relate to a tender item.

Also provide a price build-up with a copy of the written instruction and any back-up documents. Possession of complete information should deflect excuses for a derisory on-account payment.

If the final date for payment passes and there has been no response at all, immediate action is required. At this point, the difference between a debt and a dispute is important.

To establish a debt, a sum of money must be owed and due. There must be no known defence and no dispute raised. Debt is generally a case of ‘can’t pay’ or ‘won’t pay’. In these circumstances, the sum may be recovered by a credit collection agency, and fairly cheaply, unless a defence or counterclaim is raised.

Failure to pay by the final date for payment is a breach of contract but is seldom cause for determining the contract.

There are other actions that may be taken under the express terms of the contract or terms implied by statute. If neither payment nor a valid withholding notice has been issued, the contractor may suspend the performance of his obligations, provided he gives written notice.

This is a valuable remedy to a contractor, but it is essential to serve the notice as required by the contract, or in the absence of a suspension provision, the Housing Grants Construction and Regeneration Act 1996.

Failure to comply precisely could result in a breach of contract by the contractor. Work must continue if payment is made during the notice period, or recommence immediately when made.

Parallel to the suspension notice, a notice may be given to inform the other party that interest will be charged on outstanding payments, either in accordance with the terms of the contract or if there is not a provision, under the Late Payment of Commercial Debts (Interest) Act 1998.

If these procedures are implemented, the other party should receive three letters on his desk: a request for payment, the suspension notice and a notice that interest will be charged. This approach should focus the payer’s attention and promote remedial action.

Failure to pay by the final date for payment is a breach of contract but is seldom cause for determination of the contract. If determination is an option, get advice before proceeding.

The value of the non-disputed items must be paid. Apply pressure to get the other side to negotiate on outstanding items and keep talking. Consider contacting a QS for advice or to represent you in negotiations.