Non-payment in the construction industry is nothing new and continues unabated. What can a party to a construction contract, on the receiving end of payment abuse, do about it? Falling into the trap of simply stopping work or worse, walking off site, is not the solution. It has to be carefully handled to avoid committing a breach of contract.
One solution is to lawfully suspend work until payment is received. An unpaid party may rely on a contract term allowing it to suspend or its statutory right to suspend under the Construction Act 1996. It’s worth noting that the right to suspend for non-payment under the Act does not have to be recorded in the contract. Consequently, a party may be unaware of its suspension rights. Solution: read the contract, read the Act, know your rights. Under the Act a party has the right to suspend “any or all” of its obligations under the contract – provided the “notified sum” remains unpaid by the “final date” for payment. A very useful provision because for instance, it means a party can pick and choose which of its obligations to suspend e.g., design, ordering critical materials, work on site, or all of them. A word of caution, a party should be careful not to unintentionally breach a statutory duty. Before a party can suspend its obligations, it must notify the other party in writing giving at least 7 days before actually taking action to suspend, with reasons why, e.g., non-payment relating to a particular interim payment. Get it wrong, and the unpaid party may put itself in breach of contract. The contract may include a term giving the express right to suspend performance. While many contracts repeat the provisions in the Act verbatim or simply refer to a party’s rights under the Act, some contracts provide for a contractual right to suspend that differs from the Act. In other words, parties can agree their own notice periods which can be longer than the Act’s 7-day notice period before suspension can take place. Additional time to complete the works and reasonable costs of suspension may also be claimed. This includes time for winding down the works and for remobilising after payment is received. Consequently, any time limits under the contract will be adjusted accordingly. Final thoughts Usually, the threat of suspension is enough to elicit payment. However, a party who decides to suspend its obligations needs to carefully consider:
If so, then, go for it. And remember to claim additional time and money.
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Dr. Andrew MilnerDBEnv, LLM, MSc, BSc, MRICS, MCIArb Archives
February 2023
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