How to Get Paid in the Construction Industry
As you will all know well, payment issues in the construction industry are common causes of disputes, occupying time, effort and energy at every level. Unfortunately there is no magic remedy to ensure you get paid on time, every time.
There are however, certain steps you can take to increase your chances of getting paid and I thought it would be helpful to provide a brief reminder on a couple of key points:
- Negotiate Your Contract
Contractors and Sub-Contractor’s sometimes come to see us with a payment dispute, only for us to discover that the payment terms they have signed up to are unduly onerous meaning that they are either not yet entitled to the payment, or they have lost their entitlement altogether. This is not just confined to lengthy and complex provisions regarding due dates and final dates for payment, but also include a myriad of conditions precedent designed to act as hurdles to payment.
The message here is simple, review the contract at tender stage and seek to negotiate the payment terms and provisions. It’s true that in some cases the Employer or Main Contractor will refuse to budge, but you might be surprised how often you can soften the terms slightly in your favour; which can only be to your advantage.
In extreme cases there may be no discernable payment provisions in place at all. It goes without saying that clearly defined payment terms (in accordance with the Construction Act where necessary) are crucial to enable both parties to determine what sums will become due and when. It is not advisable to rely upon the implied payment terms of the Scheme for Construction Contracts and it is far better to agree clear payment terms at the outset.
- Know your Contract
It is essential that you are familiar with the terms under which you are contracting. Knowledge is power and you must put yourself in a position where you are at least as conversant with the ‘rules’ as the party you are contracting with. Failure to do so is akin to agreeing to play a card game without first getting acquainted with the rules, you are bound to lose!
In terms of payment, make sure you know:
- When your applications are to be submitted, in what form and how they are to be submitted;
- When any payment notices have to be issued by the other party;
- The date by which a pay less notice must be issued by the other party;
- When the final date for payment arises in respect of each payment; &
- Whether there are any other obstacles you must navigate before being entitled to payment, such as notices of delay or variation where additional time and money are concerned.
If necessary, seek advice on these points – it doesn’t have to cost much to do so.
- Comply, Comply, Comply
There is only one sin worse than failing to know the rules of the game, and that is failing to play by them. Once you have ascertained what the relevant contractual provisions are, make sure you have systems in place to ensure they are complied with. Failure to do so could be fatal to your entitlement to payment.
In some cases by simply complying with your obligations under the contract to make an application for payment, you may be entitled to recover the entirety of that sum by virtue of the paying party failing to keep up with its paperwork. Indeed the Construction Act as amended is drafted in this way to encourage cash flow in the industry.
- Seek advice as early as possible
Once you are faced with a situation of non-payment, the options open to you may be numerous, including suspending all or part of your works or removing unfixed materials from the site. However these options must be treated with caution and your entitlement to use them will be subject to and dependent upon strict compliance with the terms of your contract – you should seek advice as before taking this action so to avoid putting yourself in breach of contract.
It is likely that there will be a number of dispute resolution options available to you in the event of non-payment and again, the earlier you take advice the better. That is not to say that you cannot seek to negotiate with the paying party, and indeed often this will provide a resolution before significant costs are expended, but it will enable you to have a grasp of your options and the cost implications of those options. In turn this information will provide you with the tools to make a commercial decision upon how to deal with the issue.
We provide a range of flexible cost models for construction adjudication, including fixed and capped fee arrangements which provide you with the certainty you need to carry out a cost versus benefit analysis. Almost no dispute is too small to refer to adjudication and we can tailor our involvement to suit most commercial situations.
If we can assist you in any way, or if you simply want to discuss the needs of your construction and engineering project, we would be delighted to meet with you either in our office or at your office to discuss your issues. Please contact us at any time.