Fair payment: Get some ZZZs

Some say the “Z” clause in the NEC3 contract document has an awful reputation. It is an invitation for mischief. It’s where extra laughs and giggles get weaved into the so-called “agreed” contract. Without the “Z” bits, the document is fairly even-handed. But when one party - invariably the payer - wants to lump greater risk onto the outfit who does the work, he dreams up all sorts of clever wheezes; he dreams up “Z” clauses.

It’s all very well to mutter about the guide. Aspirations come cheap, thick and fast from these types of departments. Well, blow me down, they have put their money where their mouth is

But, wait, one of the government folk has suddenly seen the light. The Cabinet Office has on its website, next to a picture of Mr Clegg, a headline claiming it wants NEC “Z” clauses to be fair. Or rather, it insists that the “Z” clause in NEC3 will shout “fair payment” for main contractors. Oh, I nearly overlooked it - it whispers: “Fair payment for subbies too.” Not to put too fine a point on it, you will do something special with the “Z” clause.

Just go back in time a short while. In September 2009, an arm of government called the Construction Clients Board decided to make a contractual requirement to adopt the fair payment provisions published in the guide to best fair payment practices. Well, it’s all very well to mutter about the guide. Aspirations come cheap, thick and fast from these types of departments. Well, blow me down, they have put their money where their mouth is. Here is what you public procurement folk shall write:

“Clause Z: The contractor assesses the amount due to a subcontractor without taking into account the amount certified by the project manager” and “the contractor includes in the contract with each subcontractor:

• A period for payment of the amount due to the subcontractor not greater than 19 days after the due date in this contract. The amount due includes but is not limited to work that the subcontractor has completed from the previous assessment date up to the current assessment date in this contract
• A provision requiring the subcontractor to include in each sub-subcontract the same requirement, except that the period for payment is to be not greater than 23 days after the due date in this contract
• A provision requiring the subcontractor to assess the amount due to a sub-subcontractor without taking into account the amount paid by the contractor
• The ’due date’ in this contract is the date on which the project manager certifies payment
• The contractor notifies non-compliance with the timescale for payment through the ’efficiency and reform group’ feedback service. The contractor includes this provision in each subcontract and requires subcontractors to include the same provision in each sub-subcontract.”

Put simply, the employer has a term in the main contract that demands that each and every contractor makes a promise about payment periods. It even insists that the main contractor will require every subcontractor to put a specific payment promise in its entire sub-let works. The end client’s main contract promises to pay the main contractor 14 days from the monthly due date. The main contractor is to promise his subcontractors that he will pay his subcontractors 19 days from the same due date. Each subcontractor is to promise he will pay his sub-subcontractors 23 days from the same due date. No, no, this is not pay when paid. It is a promise to pay whether or not there is a hiccup or dispute upstream. And no, it’s not a promise to pay what the employer pays for the piling package or roofing valuation. The valuation of the sub-sub works is an independent valuation by the subcontractor.

No, no this is not pay when paid. It is a promise to pay whether or not there is a hiccup or dispute upstream

There is a snag here - can you see it? The employer is telling the main contractor what the main contractor will put in his sub-contract payment rules. Worse, it is insisting that the main contractor tells the subcontractor what the subcontractor will put in his sub-sub-contract rules. The snag? It’s this: what happens when that doesn’t get done? And what will Mr Cameron and Mr Clegg do when the subcontractor doesn’t actually pay up on day 23 to his sub-subbies? I have the answer … send the boys round, that’s what. Fancy a job?

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