How to avoid construction payment disputes

Payment disputes continue to be one of the most common problems in the construction industry, and we have published numerous articles on the key court decisions that affect the interpretation of payment provisions. Now we focus less on the gritty detail and more on the important headlines that can help prevent you from falling foul of your own payment obligations. This practical advice is aimed at employers, contractors, subcontractors and consultants.

Advice for the payer (i.e. Employers/Contractors)

• The payer should be aware of the timescales – keep on top of deadlines for issuing payment and pay less notices to avoid being the victim of a “smash and grab” adjudication –  ISG v Seevic (2014).

• Check your service of notices provisions – these will usually be separate from the payment provisions, and a notice prepared in good time will not be valid if served late or defectively –  Kersfield v Bray (2017).

• If you fail to issue a timely notice in respect of an interim application, be prepared to pay the full amount – there are few instances in which you will be able to resist payment, and the best course of action may be to think about how to rectify an overpayment at the next application – Galliford Try v Estura (2015).

• Conversely, if you fail to issue a notice in respect of a final account application, you should be able to revisit the true value of the contract works – note however that you may initially have to pay the full claimed amount – Harding v Paice (2014)  and Kilker Projects v Purton (2016).
• Don’t rush into challenging the validity of a payment application – the prospects of success may be limited based on the court’s guidance and the contractual requirements – Kersfield v Bray (2017).

Payee (i.e. Contractors/Subcontractors/Consultants)

• Check that your contract allows for interim payment – applications should be monthly throughout the course of the project. If the contract includes a schedule of application dates, it should also allow for further applications beyond the expiry of that schedule – Balfour Beatty v Grove (2016).

• Ensure that applications are made at the correct time, clear and unambiguous, state the amount claimed, and detail how it has been calculated – failure to do so may entitle the employer to challenge the validity of your application.

• If the contract imposes further requirements, such as to form or content of an application, do as the contracts says – to avoid rejection of any aspect of your application, ensure that you include sufficient detail and substantiation to the extent that the contract requires.

• If you receive full payment of an interim or final application by reason of the employer’s failure to issue a notice, they will likely seek recovery of any overpayment at the next application or by final account resolution – be prepared for the possibility of a repayment, or that the employer will seek a stay of execution. In certain cases, it may be wiser to negotiate and agree a figure than incur the potentially irrecoverable costs of refuting such a request – Galliford Try v Estura (2015) and Kilker Projects v Purton (2016).