Construction Act payment rules: Why the scheme works a dream

I am going to have another go at getting my mind, and yours, around the payment rules in the revised “Construction Act”. Look, none of these rules that Parliament gave us last October are easy to understand. Truth is, they are an awful mess. Mind you, the payment rules they superseded were a mess, too. The law lords in one case back in 2007 described one part as a “puzzle”, adding it “seems to have dropped from heaven into the legislative process on its last day in the House of Commons”.

The reason for having another go at fathoming the rules is that I attended a talk by adjudicator John Riches. He put an arm around my shoulder and whispered about the payment rules. He was good.

Life now becomes so much easier to understand because the scheme replaces the mess in your contract

The whole idea is that your construction contract will provide an “adequate mechanism” for determining three things: (1) what payments become due in stage and final payments; (2) when the due date is, and (3) the final date for the cash to arrive.

The rules then embroider the basics by telling you what amounts to, or torpedoes, an “adequate mechanism”. That’s where I get well and truly flummoxed.

Meanwhile, assume that you make a botch of interpreting Parliament’s own botch and fail to include wording in your contract to provide an “adequate mechanism” for all this “what and when” for stage payments. Life now becomes so much easier to understand because The Scheme replaces the mess in your contract and applies if your contract is silent as to stage payments. Unless there is an “adequate mechanism” in the contract, The Scheme applies. Lo and behold, The Scheme is easy to follow. It tells you:

1) how to calculate stage payments. Even better, the calculation is in good old-fashioned language … the stuff you were brought up on. You value the work properly done to date and variations, loss and expense, materials on site, less previous cash payments.
2) It then tells you when the due date is and when the cash is to actually be paid.
3) It then tells you that the payer is supposed to send a piece of paper or email publishing the sum to be paid.
4) Finally, it tells you that if the payer reckons he ought to pay less than first thought, he can send you a revised piece of paper or e-mail saying so. It’s interesting to ask what happens to The Scheme’s machinery if, as so often occurs in real-life, no-one sends these payment notices telling the payee what sum to expect?

Failure to send the payment notice in time as laid down in the Scheme means that the amount due is only the work done, variations, loss and expense, and materials on site less previous payments. There appears, arguably, no room for contra accounts, set-off.

And then comes the rigmarole as to who is to give notice of the amount due. Oh dear, it’s enough to make your head spin

The Scheme’s “payment machinery kicks in to sweep out a defective payment regime, which the contracting parties attempted to lay down. Parliament’s idea was to leave open to the parties the right to choose their own “adequate mechanism” meaning a plain and certain way of determining what is payable in stage payments and it is up to them also to lay down the “When”, always provided it stacked up under the banner of stage payments.

Parliament then sticks its oar in. For example, it bans the right to payment being dependent upon the performance of someone else under another contract unless that other contract is a nominated subcontract. All that is wrapped up in gobbledegook drafting in the act. Parliament is saying this device is not adequate machinery.

And then comes the rigmarole as to who is to give notice of the amount due. Oh dear, oh dear, it’s enough to make your head spin. And then oh dear, it says what’s to happen if the person supposed to give notice doesn’t. And then comes yet more pathetic rigmarole about trumping the first notice of amount due with a payless notice.

Four or five years ago, the JCT dumped several pages of bumf about the mechanism for conducting adjudication. It replaced it all with a simple message: when adjudicating use the Scheme. It strikes me that we could all do that for the payment mechanism. Just leave the mechanism for the what and when of payment to that in the Scheme.

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple