Cash Flow in the Construction Industry

There are many reasons why payments are delayed on a building or engineering project.

However, there are a number of common themes in respect of which experience shows that if the right procedures are put in place and operated at the right time, the prospect of payment and even prompt payment are maximised.

The key procedures include:

  1. Having a proper contract in place.
  2. Making sure all involved in operating the contract both on site and in the office are familiar with its main terms in relation to payment and time for completing works. These terms frequently require particular Notices to be served at the right time and contain the correct detail.
  3. Keep good and correct records at all times.

In a dispute those that prevail, invariably have a contract in place, understand the contract, operate the contract and keep good records. It also helps to have right on your side but even those who are on the other side of being righteous can improve their position by having and keeping to the key procedures. This can help reduce or mitigate the extent of any claim.

As an illustration of the above, the new Construction Act (although not so new now) came into force and applied new laws to all construction contracts entered into after 1 October 2011. The most major change to the law provided that in the correct circumstances, if a contractor made an Application for Payment setting out its value of its works and the paying party or its professional team did not respond in time or serve a notice in the appropriate form with the correct content, the sum applied for became a debt which must be paid straight away. This applies even in cases where the sum applied for on a proper analysis was not representative of the sum or any sum due.

If the contract is not in the form required by the Construction Act, certain terms will be automatically implied into the contract so that it does comply.

If you would like to discuss this in more detail, without obligation, please contact Andrew Hickman or Amiee Thomas  on 01283 526200.

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