Interim applications, final accounts and unpaid applications

The amendments to the Housing Grants, Construction and Regeneration Act 1996 have now been in force since October 2011 and the changes are now reflected in standard contracts and sub contracts. They should also be incorporated into bespoke contracts. Despite this the new payment system introduced by the amendments still surprises employers, contractors and sub contractors. It can catch the unwary out as payment of an application may have to be made in full if an employer or main contractor fails to comply with the requirements now imposed.

The simple issue is that a paying party (and of course this is usually an employer or main contractor) who wishes to withhold money from an application or certificate must issue a payment notice and/or a pay less notice strictly in accordance with the terms of the contract. In this regard it is also important to note that even if there are no formal terms in the contract the requirements are imposed on the parties by virtue of the Scheme for Construction Contracts (England and Wales) Regulations 1998 (Amendment) (England) Regulations 2011. A failure to issue the required notices will result in the full amount of the application made becoming due.

The important point is this: over and above the now well known requirements that the contract must contain (or the Scheme will impose) an adequate mechanism to provide:

  • what payments become due,
  • when those payments become due, and
  • the final date of payment of those sums,

the contract must provide for the issue of various notices at set times.

This is where it can get complicated as notices such as ‘payment notices’, ‘default notices’ and ‘pay less notices’ come into play and have to be issued at precise times. This is not the place to attempt to set out all the detailed requirements but beware – if you are the paying party then if you do nothing when you receive an application or you fail to issue the pay-less notice at the appropriate time then you will be obliged to pay the sum in the application – even if you consider there are defects in the work carried out or liquidated damages to be deducted.

Equally if you are the party applying for payment you should be aware that if the party paying you does not issue the requisite notices at the appropriate time then you will be entitled to payment of the sum applied for.

If, as someone paying or as someone making an application, you have any concerns about the notice procedure, when the notices should be issued and what they should say or contain then ring us for advice.

Importantly don’t forget the fact that you have no formal terms and conditions or any terms and conditions that you do have do not set out the requirements referred to above does not mean they do not apply to you. The law imposes these requirements on any construction contract whether the parties involved wish for this or not – by means of the Scheme for Construction Contracts (England and Wales) Regulations referred to above.