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Top Tips: for Contractors to Minimise Payment Disputes on Construction Projects

By Andrew Hickman, Partner & Head of Construction, Else Solicitors

Andrew.Hickman@elselaw.co.uk, 01283 526200

In dealing with construction disputes for some 30 years, I have found that there are a number of common areas which give rise to payment disputes and difficulties for contractors working on construction projects. Many of these can be avoided if the necessary work and due diligence was applied before the contract commenced.  Below I’ve listed nine tips that will help contractors better prepare for construction projects and also maximise the prospect of getting paid in a timely manner:

  1. Ensure that a proper contract is in place, and that you fully understand all the terms, clauses and amendments. Many clients or main contractors will adopt standard form building contracts, but make specific amendments to transfer risk and impose more onerous terms than in the standard form. These need to be checked, negotiated away or at very least understood.

 

  1. The scope of the works being carried out (usually for a fixed price) needs to be as clear and as detailed as practically possible. In other words, avoid leaving any grey areas which may lead to arguments as to what is and what is not included within the fixed price, and what is additional work or cost.

 

  1. Have a proper programme in place with a clear agreement to have full and uninterrupted access to working areas at the relevant times. Restricted access and lack of ability to work in a continuous manner frequently lead to delays, and hence disputes about entitlement to more time and payment of loss and expense.

 

  1. Have very clear and agreed payment terms and payment procedures. Most building contracts work on the basis of interim payment cycles (usually monthly).  There should be a clearly agreed schedule of dates by which an application for payment is to be submitted, payment/related notice is to be received or served, pay less notice is to be received/served, and final date of payment of each interim application.  In addition the format of the interim application should be agreed.  In an ideal world the interim valuations should be agreed but this is not always possible.  In certain circumstances, the application for a payment can become a default payment notice and binding upon the paying party.

 

  1. The contract often provides for certain notices to be served in a certain form and at a certain time. For example, payment notices, notices of delay and notices of disruption and claims for loss and expense.  These provisions must be fully understood and operated.

 

  1. Full and appropriate contemporaneous records must be maintained at all times. This is crucial evidence which frequently helps to avoid a dispute escalating, and/or helps with its resolution (even if that is by formal means).  The type of records that should be kept include appropriate notices, letters, emails, site diaries and photographs (which are timed and dated).

 

  1. As far as practicably possible, if any instructions are given which constitute changes or variations, the consequential costs should be promptly calculated, provided and agreed.

 

  1. Ensure that payments are kept up to date and if they start to be reduced against what is considered to be the proper valuation or delayed, consider formal options under the contract and take appropriate advice. In this respect be very careful about simply stopping work and walking off site.  The Construction Court does not like this course of action and it can put the contractor in question in repudiatory breach.

 

  1. Finally, keep a very close eye on retention. Certain main contractors attempt to impose a term so that the final part of retention is not released until the ‘Certificate of Making Good Defects’ is issued. The amendment to the Construction Act has now prohibited this but it is still a common feature of disputes. Further, if there is any concern with regards to the solvency of the employing contractor, consideration should be given to getting some form of security for the retention.  It is possible, for example, to require the employing contractor to place the sub-contractor’s retention money on trust in a separate account which cannot be accessed by an administrator or liquidator of the employing contractor.  In other words it is kept out of the employing contractor’s general cashflow.

 

The above is a general guide only.  If issues do arise then having the practical steps listed above in place will, in my experience, greatly assist.

Else Solicitors have a dedicated and specialist team of Construction Lawyers, with decades of experience managing all aspects of Construction Law. For more information and an initial discussion please contact Andrew Hickman or Amiee O’Toole by email (andrew.hickman@elselaw.co.uk / amiee.otoole@elselaw.co.uk) or via our main office 01283 526200.