Construction Payment Disputes
Payment disputes arises when parties to a construction contract disagree on the sum payable, the timing of payment or the method or basis of payment.
Disputes often stem from delayed or non-payment, incorrect payment applications or certificates, under or over charging, valuation disagreements, failure to issue valid payment notices (or pay less notices) and changes to the scope or quality of works delivered.
Types Of Payment Disputes
There are different types of payment disputes including technical disputes, substantive disputes, disputes about retained sums and disputes in relation to late or non-payment.
- Smash and Grab Adjudications
- These arise from technical non-compliance and failure to follow payment notice procedures.
- True Value Disputes
- These involve substantive disagreement over the actual value of works or materials and arise in the context of interim and final valuations. Typically, these disputes require input from quantity surveyors or other valuation experts.
- Retention Disputes
- These relate to the treatment of sums withheld pending practical completion or the end of the defects liability period.
- Late or Non-Payment
- These disputes are common in the construction sector, with potentially very significant implications for cash flow and project delivery. Remedies may include interest, suspension or termination.
Payment Applications And Notices
The Construction Act sets out strict rules around payment cycles, notices and final dates for payment. Construction contracts must align with statutory requirements and set out clear processes for payment applications, notices and certificates.
Valuations And Certificates
Payment is often based on interim and final valuations certified under the construction contract. To be enforceable, these valuations must be issued within agreed timeframes, contain sufficient detail and comply with contractual valuation methodologies.
Pay Less Notices
A Pay Less Notice allows a party to pay less than the amount claimed in a payment application, but only if the pay less notice is served on time and satisfies legislative and contractual requirements as to content.
Timely action is critical to avoid procedural traps that can result in automatic liability. If a party delays serving a pay less notice or fails to do so altogether, then then Notified Sum will be payable, regardless of its accuracy. The paying party will be required to adopt a ‘pay now, argue later’ approach.
Suspension And Termination Rights
Under the Construction Act, a party not paid on time may suspend performance with notice and may eventually terminate the contract; however, these steps must be taken in strict compliance with the terms of the construction contract to avoid waiving other rights or triggering liabilities.
Managing And Avoiding Construction Payment Disputes
Parties who do some or all of the following can significantly reduce the prospect of payment disputes arising:
- Draft clear payment terms, which are compliant with the Construction Act
- Ensure all parties understand and follow key payment procedures
- Train commercial teams to issue notices correctly and on time
- Support proactive project management
- Retain thorough records throughout the project life cycle
Legal Assistance
If you need help in relation to payment issues, including managing contractual compliance or resolving a dispute that has already crystallised, we can help.
We recognise that every dispute is unique and strive to offer pragmatic, tailored and creative legal solutions and to maximise outcomes for our clients.
How To Get In Contact
If you require advice on Construction Law and are interested in finding out how we can help, please contact Paul O’Donnell at paul.odonnell@culbertellis.com or call 07521 417579.
