Coming out of the Covid-19 lockdown can present cash flow problems, with bills and staff to be paid and nobody keen to pay you promptly. However, the Construction Act offers protection to sub-contractors - providing you follow the rules.
Most of you involved in a construction contract will be under a form of JCT (Joint Contracts Tribunal). Commonly, standard contracts will include a Contractor’s Design Portion (CDP). This gives a sub-contractor responsibility for certain aspects of the design, usually installation and fixing.
Close attention should be paid to the M40 specification and the Employer’s Requirements. Normally the CDP element will be detailed in the contract and should be discussed at tender stage, and certainly at the post tender interview, before you accept the contract.
You may need to take on Professional Indemnity Insurance for any design work you undertake – and it’s expensive. You might be able to recover the cost from the contractor as part of your prelims.
Payment in construction contracts is governed by Part II of the Housing & Grants, Construction & Regeneration Act 1996 and subsequent amendments and revisions. Where the terms of any contract fail to satisfy the Act there is a statuary instrument called the Scheme for Construction Contracts.
Payment by instalments are obligatory under the Act unless the work takes less than 45 days. Contractor and sub-contractor agree the amount and timing of interim payments, normally in the form of a Payment Schedule. Where the contractor fails to provide this, the Scheme for Construction Contracts applies, with payment for work done and materials supplied on a 28-day cycle.
Assuming you have a payment schedule, this will outline the timing and procedures for the sub-contractor to submit an interim valuation and receive payment – usually five or six days before the end of the month of the valuation. It is an estimate of the work to be completed by the end of that month.
The next date is the Main Contract’s ‘due date’, usually the last day of the month. This is the day the Contractor’s valuation is presented to the client. Seven days later the Contractor receives a Payment Certificate from the client. Seven days after this (14 days after the end of the month) the Main Contractor will issue an assessment and Payment Certificate to the sub-contractor.
If they have assessed the sub-contractor’s account and calculated no payment is due for the sums contained in the interim valuation, the Contractor then issues a Pay Less Notice. This must be issued seven days before the invoice payment date, which will be notified in the Payment Schedule.
The basic framework for most months on a 30 day valuation cycle will be this:
24th-26th – sub-contractor interim valuation
30th-31st – Main Contractor’s interim valuation to the client
7th – Client issues a payment certificate to the Main Contractor.
14th – The Main contractor issues a payment certificate to the sub-contractor.
At that point you should issue your invoice for the value of the payment certificate.
The invoice payment date to the sub-contractor will be the end of the month or the first week of the following month.
A 45-day payment term will mean payment will not be expected until around the 15th of the month after that, and, therefore, the payless notice will not be due until the 8th of that month.
All these dates must be notified to the sub-contractor in the form of the Payment Schedule. If you don’t receive them with the contract documents you should ask for a copy.
Where the main contractor fails to provide a Payment Notice or certificate to the sub-contractor within the time scales set out in the payment schedule, the sub-contractor can give a payee notice to the Main Contractor. The date for final payment of this will be delayed by the number of days delay in giving the notice.
The JCT Standard Building contract (Clause 4.6-4.16) sets out the provisions for valuation and payment. Importantly, Clause 4.11 states that the contractor (or sub-contractor) may provide an interim valuation setting out the amount claimed and the basis of the calculation.
Valuations are a claim and subject to adjustment by the main contractor. Valuations MUST be submitted on time and the calculation for the claimed amounts must be clearly stated against agreed contract prices. Here it might be useful to use the tender spread sheet – but remember to change the page title and dates each time.
Sometimes contract payment terms sneakily require a printed copy of any valuation to be sent to a given address as well as being submitted by email. This is particularly irritating when payment is late and the contractor says there is no money due because you failed to send in a hard copy. This does not seem to have been challenged in the courts but seems decidedly... archaic, shall we say.
Variations should be clearly costed, preferably on an adjacent tab if using a spreadsheet, referencing site instructions, drawing changes, dates, and who issued the variation. You should issue a cost within 5-7 days of being aware of the variation.
The biggest single contributory factor to getting paid on time is your relationship with the contract team and in particular the Quantity Surveyor. Their job, like yours, is to protect the company’s cashflow and money. But we all like to help people we get on with and you can get into most QS’s good books by being on time, clear in your presentation, with good quality records to back up any variation.
If you need any assistance with putting together a valuation or want to discuss a dispute, don’t hesitate to contact me.