Getting paid on time is a legal hurdle, but there are ways to mitigate business risks

Late payment are not only a big issue for business but also for legal teams working on the statutory or contractual aspects of payments. Robert Stevenson, partner at law firm BLM, offers some insight.

Robert Stevenson
26 October 2015

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Getting paid on time can be one of the major challenges in the construction sector, often putting consultants in the unenviable position of choosing between enforcing their rights or losing the opportunity for future work from a good client. 

However, in many cases getting to grips with the statutory and contractual requirements of payment is just as important to achieving the desired outcome, and minimising the chance of taking a hit on cash flow.   

Speaking to an audience of ACE members in London, Robert Stevenson, Partner of BLM, provided compelling synopsis of how to get payment requirements right and avoid pitfalls.

BLM will  be hosting an ACE Legal Update in Manchester of the 10th of November, currently open for registrations, with a view to covering key contractual as well as legal issues. 

Stevenson explained, “Many payment disputes we deal with arise for avoidable reasons, for example the consultant fails make the application for payment in a clear way or in accordance with the contract timetable.  Remember that to be effective under the S.110A of Construction Act a payment notice must be timely and accurate. 

Or we often find that the consultant has agreed to change or increase the scope of work, but are unable to recover their fees because they have not done so in accordance with the procedure set out in the contract, eg not serving the appropriate notice at the right time. Equally they have failed at least to threaten to use the contractual remedies to secure payment. ” 

The number of late payment issues that result in disputes can be mitigated through key points for proper contract approaches expressed by Stevenson.

Within the typical contract, there will be procedures included that relate to payment and timetable for actions, including payments. Considering these two aspects of the contract, one must ensure any agreements reached informally, through dialogue or otherwise, that vary the elements included are subsequently written out and agreed to formally in accordance with the mechanism in the contract. Without formalising these changes, the risk increases that the changes made informally will not be adhered to.

Additionally, throughout the course of the contractual agreement and subsequent actions one must adhere to these contract elements, particularly the timetable for issuing payment notices.

Another aspect in which individuals can manage potential late payment risks are within the consideration of any “pay less” notices issued by the client. Such notices need to be scrutinized as much as possible in order to ensure that they are effective. When a “pay less” notice is given, make sure to consider whether or not any given grounds are weak or erroneous, and if it is needed, consider whether it is appropriate to challenge by adjudication.

The last tip Stevenson gives for mitigating late payment risks is that when a non-payment event occurs not in accordance with the contract, be prepared to serve a notice of intention to suspend services either in part or in whole under Section 112 of the Construction Act.  This can be a very effective tool, but do take advice going down this route to ensure the relevant requirements are met, and of course consider the commercial impact this decision may have!

Late payments, unfortunately, do not seem to be an issue that will be soon overcome across the industry. As such, it is vital that firms ensure this is addressed not only by those within the finance or budgetary departments but also mitigated through legal efforts.

BLM will  be hosting an ACE Legal Update in Manchester of the 10th of November, currently open for registrations, with a view to covering key contractual as well as legal issues.