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The requirements for payment notices have been with us for 25 years now and still the same mistakes are being made and leading to invalid notices and the dreaded “smash and grab” adjudication. In this process the payment notices issued get scrutinised by an adjudicator to see if they have met the statutory requirements similar to when our referees play charades for a moment, draw an imaginary TV and head to the monitor to check a penalty.
The consequences of falling foul of these provisions really is draconian as if you submit an invalid notice or miss a payment notice window, then you could be forced to pay the amount claimed by a contractor or subcontractor, regardless of the rights or wrongs of their application.
It really is an own goal that is easily avoidable, and we can tell you how.
The stipulation of Payment Notices all stem from the Construction Act which was introduced a long, long time ago. In typical statute form the wording can seem a little confusing for a lay person but we have broken it all down below. The statute states as follows.
110A Payment Notices: Contractual Requirements
(1) A construction contract shall, in relation to every payment provided for by the contract-
(a) require the payer or specified person to give a notice complying with subsection (2) to the payee not later than five days after the payment due date
(2) A notice complies with this subsection if it specifies-
(a) in a case where the notice is given by the payer-
(i) the sum that the payer considers to be or to have been due at the payment due date in respect of the payment, and
(ii) the basis on which that sum is calculated
So, to translate from legalese there are a number of criteria that need to be satisfied in order for a notice to be compliant with this legislation. To demonstrate this best we have used the example of the typical JCT payment provisions which are a 21 day payment cycle and are Construction Act compliant.
Firstly, you must calculate the correct payment dates! If you fall at this hurdle then the application will be invalid at the outset. So, you need to calculate the due date for the payment notice in question. Under the JCT payment provisions this is 7 days from the interim valuation date. So, if the interim valuation date is 1st of the month, then the due date is the 8th of the month (subject to bank holidays and delays in receiving contractor applications) and it must be stated on the payment notice. Crucially though, you must issue your notice on time! If you miss your window to issue your notice then it is invalid automatically and this is the most common pitfall.
Secondly, you need to calculate the payment that is due at the due date. Simple right? Well, a common mistake is that payment notices calculate the overall value of works and fail to identify the amount due in respect of the specific due date. The typical calculation for this is the overall value of works completed less retention and amounts previously paid. So, ensure the amount due is the amount due on that due date only.
Finally, you need to demonstrate the basis on which the sum has been calculated. This means you need to provide the back up to the figures on the payment notice. If you simply provide a payment notice and do not identify or demonstrate how this figure has been calculated then again your notice will fall foul of the Construction Act and be invalid.
So, make sure you follow the golden rules;
These steps are absolutely imperative to any construction payment process that is bound by the Construction Act.
So, whether you be an Employer, Employer’s Agent or Contract Administrator or even a contractor or subcontractor you need to make sure that your payment notices follow the golden rules. Otherwise, you could face the anxious wait of the construction equivalent of a VAR check in a “smash and grab” adjudication.
As always if you need any help with post contract surveying, contract disputes or payment disputes, please do get in touch at [email protected]
