Using the Construction Act to Get Payment from your Customers
The construction industry is fraught with late payment and poor payment practices, in fact late payments rose by 27% within the construction industry in 2015,* with construction businesses writing off almost £15,000 on average in the past year **.
The Construction Act can be used a vital resource in the construction industry to understand your rights in terms of construction contracts, as well as negotiating payment due to you.
What is the Construction Act?
The Housing Grants, Construction & Regeneration Act, aka The Construction Act was introduced in May 1998 and was amended in 2009 to be known as Local Democracy, Economic Development an D construction Act 2009, commonly known as the New Construction Act. The act covers a whole host of things, but part 8 covers construction contracts, including aspects such as, payment processes and dispute resolution (adjudication).
I have come across many construction companies that either don’t fully understand the construction act, don’t use it well enough to their advantage or have misconceptions about what the construction act allows them. However I highly recommend making yourself familiar with the act and what it entails, as using the construction act will make a huge difference in getting paid from your customers.
Retentions
A common misconception with regards to getting paid retentions is the making good of defects certificate needs to be issued for the whole contract before getting paid, this is no longer the case. A subcontractor is still entitled to payment on 12 months completion, as long as they have issued an application and have performed all of their duties stipulated by the contract, i.e. snagging. Unless issued with a pay less notice, they are entitled to be paid their full retention. In the event of non-payment the sub-contractor should check their contract to understand what remedies they have available to them to take further action, this may be court or adjudication.
Pay when paid clauses
Conditional payment clauses have now been entirely abolished from the previous act, meaning that companies awaiting payment from a third party, cannot withhold payment from a subcontractor as a result. Put simply, a contractor cannot withhold payment under one contract due to issues with a separate contract.
Sources
*Construction Index – Huge rise in late payment problems
**Small Business – Small businesses forced to write off debt due to late payment
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