Payment In Practice Under Part 8 Of The Local Democracy, Economic Development And Construction Act 2009

This final issue of Insight of 2014 focuses on an important subject that has been out of the limelight for some time, but which has come back into focus in time for the Christmas break: the payment regime under the Local Democracy, Economic Development and Construction Act 2009 ("LDEDCA").

We last wrote about the "new" (as it then was) payment regime in issue 18 of Insight, two years ago this month1. The payment regime was preceded by eight years of debate and months of delay before finally being implemented on 1 October 2011, and a flurry of case law was expected to follow in its wake. To the surprise of many, there has been no reported case law on the payment regime until very recently, when the decisions in ISG Construction Ltd v Seevic College [2014] EWHC 4007 (TCC) ("ISG v Seevic") and Harding (t/a MJ Harding Contractors) v Paice and another [2014] EWHC 3824 (TCC) ("Harding v Paice") were handed down by the Judge in Charge of the Technology and Construction Court, Mr Justice Edwards-Stuart, within two weeks of each other earlier this month.

This 42nd issue of Insight (i) provides a reminder of the key principles of the payment regime; (ii) reviews the decisions in ISG v Seevic and Harding v Paice; and (iii) provides practice points in relation to both payment and adjudication going forward in light of Mr Justice Edwards-Stuart's judgments in ISG v Seevic and Harding v Paice.

A reminder of the key principles of the payment regime

The starting point for the payment regime is the payment due date. The payment due date is either prescribed by the contract, or, in default of contractual provision, the Scheme for Construction Contracts (England and Wales) Regulations 1998 (as amended) ("the Scheme") will apply. Under the Scheme, the payment due date is whichever is the later of (a) the expiry of 30 days following the completion of the work, or (b) the making of a claim by the payee.

The payment process is as follows:

The Payment Notice is due from the Employer/Main Contractor or Employer's agent (such as the Architect, QS, Engineer or contract administrator ("Payer"), or, if the contract so provides, Contractor or Subcontractor ("Payee") within five days of the due date for payment (under the Scheme), or as otherwise provided by the contract. The Payment Notice must state the sum which is considered due and the basis on which that sum is calculated. A Payment Notice must be issued even if the sum due is zero, which will most commonly be the case during the defects liability period. If no Payment Notice is served, any preceding payment application issued by the Payee will stand as the Payment Notice, provided the payment application meets the requirements of a valid Payment Notice in that it states the sum which is considered due and the basis on which that sum is calculated. If no Payment Notice is issued, or the Payment Notice served is invalid, the Payee must immediately issue a Default Payment Notice stating the sum which is considered due and the basis upon which that sum is calculated. The service of a Default Payment Notice will extend the final date for payment by the number of days between the date on which the Payment Notice should have been served and the date of service of the Default Payment Notice. If the Payer wishes to dispute the sum that is stated to be due in the Payment Application, Payment Notice or Default Payment Notice, the Payer may serve a Payless Notice stating the sum which is considered to be due...