Late Payment Issues: Stick To Payment Procedures And Don't Forget Your Right To Adjudicate

Late payment continues to be a scourge on the construction industry and evidence of its debilitating effects abounds both in the industry press and in court reports. A recent article published in Construction News highlighted the bleak statistic that one in four SMEs is at risk of collapse due to late payment (see this Construction News article) and a late payments survey carried out by Textura Europe and shared with Construction News ( click here) found that more than a third of main contractors, sub-contractors, clients and consultants are paid more than 60 days after issuing invoices.

It seems therefore that the payment requirements set out by the Housing Grants, Construction and Regeneration Act 1996 (as amended by Part 8 of the Local Democracy, Economic Development and Construction Act 2009) (the Construction Act) to improve cash flow have been of little help for some although the government's continued efforts to address payment issues are evidenced by various initiatives including:

the Prompt Payment Code1 introduced to improve payment procedures and cash flow; the discussion paper published in February 2015 (" Late Payment: Challenging 'grossly unfair' terms and practices"); the summary of responses to that paper published in June 2015; the launch by the Department for Business, Innovation and Skills (BIS) of a further consultation in October 2015 seeking views on how to change the statutory framework (the consultation closed on 27 November 2015); and the introduction of a duty on companies to publish reports on their payment practice and procedures under section 3 of the Small Business, Enterprise and Employment Act 2015. (This act came into force on 26 May 2015 but the reporting duty will apply from April 2016.) Late payments often lead to litigation but what is surprising is that parties to construction contracts do not more often take advantage of the protection - and remedies - provided by the Construction Act, if only the parties would incorporate and implement the correct payment procedures in their construction contracts.

In a recent High Court case, for example, (Wilson and Sharp Investments Ltd v. Harbour View Developments Ltd [2015] EWCA Civ 1030), an unpaid contractor tried to recover payment on unpaid invoices by attempting to wind up the employer's business. This attempt failed in part because the employer had a genuine cross claim and the payment was disputed. However, the employer had not issued pay less notices and...