Cashflow is the life-blood of any construction business. Without it contractors and sub contractors quickly go out of business. However obtaining payment is difficult and the industry is adept at giving reasons why payment hasn’t been made.
The answer is not to react by simply walking off site – the Construction Act provides that remedy but it must be done for proper demonstrable reasons and it must be done strictly in accordance with either the terms of the contract or the rules set out in the Act.
You must appreciate that if payment is not made then you have to serve a notice of an intention to suspend (call it a warning notice) and if, within the specified time or if none is stated 7 days, you are then and only then entitled to suspend the work you are carrying out.
It is a very effective tool and most times releases payment. If it doesn’t then maybe the payer has financial problems and you might be better off site. However do it properly – if you are in any doubt ring us for advice; if you get it wrong then it could prove very expensive.
It is necessary for the subcontractor to serve a written warning notice on the contractor and if seven days have elapsed and payment still hasn’t arrived, the subcontractor is then entitled to suspend work.
Without the warning notice, the subcontractor who suspends work can find itself in the wrong and on the receiving end of a delay claim, despite the contractor’s failure to pay on time.
If the subcontractor’s work is on the critical path, the threat to suspend work often results in the arrival of the money.
Where a subcontractor correctly suspends work, there is an entitlement to an extension of time for completion. Some subcontract conditions also provide for subcontractors to receive payment for the loss and expense incurred as a result of the suspension.