Interest On Late Payments Under Construction Contracts

The Late Payment of Commercial Debts (Interest) Act

1998 ("Late Payments Act") allows high interest

rates to be levied on late payments under construction contracts in

certain circumstances. A recent decision of the Court of Appeal has

clarified the operation of the Act and will be of interest to

contractors faced with worsening payment practices in the current

economic climate.

There are four ways in which interest may be recovered for

delayed payments under construction contracts:

Under a specific contractual provision allowing interest

Under a specific contractual provision allowing interest

Under the Late Payments Act, which presently allows 8% above

the Bank of England base rate

By proving one's actual financing costs (or loss of

investment return) as damages for breach of contract

Under the general powers of courts and arbitral tribunals to

award interest on top of their judgments/awards (and also by

adjudicators where the applicable adjudication rules so

provide)

Of these four, the substantial rate of interest allowed by the

Late Payments Act often provides the best recovery (although only

as simple interest – the other ways mentioned above

sometimes allow compound interest). Whilst the Act is generally

applicable to most payments under construction contracts, the

parties are free to agree otherwise. The...