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...
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