Disclaimer

These questions and answers are for general information and guidance only. They should not be relied on in particular situations without contacting Quigg Golden and receiving detailed advice.

How does the Construction Act 1996 or Construction Contracts (Northern Ireland) Order 1997 affect us?

The Order provides certain rights to parties to a construction contract in respect of payment. If you keep an eye on these, you will improve your cashflow. These are:

• For payment by instalments or stage payments for contracts over 45 days duration;

The Order now regulates the provisions which must be found in construction contracts both standard form and those that you have drafted yourselves. Article 8 of the Order states that unless the duration of the works are to be for less than 45 days contracts must provide for stage or other periodic payments.

• To be informed of the amount to be paid in any instalment and when it is due for payment and the basis on which any amount is calculated;

The Contract must provide a mechanism for determining what payments become due, when these are due and what the final date for payment is. Article 9 of the Order means that the payee must now specify the amount of the payment to be made or proposed to be made within 5 days of the date on which a payment becomes due.

• To be given notice if it is intended that any payment be withheld;

Article 10 of the Order provides that payment may not be withheld after the final date for payment unless the payee has given a Notice of Intention to Withhold Payment.

• The right to suspend performance if payment is not made within a specified period; and

Article 11 of the Order gives a right to suspend performance for non-payment if monies due under the Construction Contract are not paid in full by the final date for payment and no Notice to Withhold has been given.

• The outlawing of pay when paid clauses

Article 12 of the Order prohibits pay when paid clauses except where a person from whom the payer is receiving payment is insolvent. If your contract does not comply with the Order then the Scheme for Construction Contracts Part 2 applies. By way of the Scheme for Construction Contracts the Order makes provision for the referral of a dispute arising under a construction contract to adjudication.

How to use the Construction Order to help, and what is needed?

The Construction Order is supposed to help you by making bills more certain to be paid and making disputes easier to settle. The measures that were introduced to ensure this were:

• new rules to make payment fairer;
• the right to suspend work for non-payment;
• the introduction of Adjudication.

If your Contract doesn't allow for these then the Scheme for Construction Contracts will kick in.

In order to get the Construction Order to help you, you need to exercise your rights under points 1, 2 and 3. We will deal with them individually.

New rules to make payment fairer

Under Article 12 of the Order pay when paid clauses are now banned unless the third party is insolvent. Your money cannot be withheld due to a pay when paid clause. This is illegal and you must take action if the payee attempts to do this. As we indicated at the previous section, main contractors may try and get around this by including pay when certified clauses in the Contract, such a clause should not be agreed, when entering the contract initially.

Under Article 9 (2) of the Order the payer must now issue a notice within 5 days of the due date, identifying what will be paid, what the payment relates to, and on what basis it has been calculated. If you do not agree with the calculations you must write and give your reasons.

Construction contracts must now provide a final date by which each interim payment has to be made. The Scheme specifies 17 days from the due date. There are two main points here. Firstly, you should mark on a calendar when you are due payment and follow it up. Secondly, object strongly when formulating a contract if the contract contains a period longer than 17 days from the due date when a payment must be made or if it tries to alter the due date disadvantageously.

Under Article 10 of the Order parties intending to withhold payment must give notice that they intend to do this and reasons for their actions. The notice period may be a period specified within the contract, otherwise it will be 7 days under the Scheme. If no notice is received, payment cannot be withheld. Take action!

The right to suspend work for non-payment

Under Article 11 of the Order you now have the right to suspend work if payment has not been met by the final date for payment and no withholding notice has been issued. 7 days notice of intention to suspend must be given. Think about exercising these rights as long as you are satisfied that you are exercising them within the Contract. Object to entering into a contract where the other party wishes to extend the notice period beyond the 7 days given under the Scheme.

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