There were two separate complaints. The first was justified. Smaller and occasional clients are still choosing their contractors on a lowest-price basis, leading to adversarial responses throughout the supply chain. One remedy is to ensure much wider circulation and more frequent updating of the excellent Construction Clients Forum leaflet, which is specifically directed at such clients.
The second complaint is one with which I have diminishing patience. It comes from those who say they are still experiencing contract abuse. They grumble that contract payment terms have lengthened since the introduction of the Construction Act.
You would think from some of the complaints that all subcontract work before 1 May 1998 ws carried out scrupulously in accordance with the payment provisions of DOM/1. The reality is that many contracts were let under onerous payment conditions, often including “pay-when-or-if-paid” clauses.
Every specialist contractor knew which main contractor paid reasonably promptly or slowly, and priced its bids accordingly. Under the Construction Act, which is receiving admirable backing from those judges robustly upholding the intentions of parliament, “pay-when-or-if-paid” clauses are ineffective, and the aggrieved party has a right to suspend the contract or seek redress through adjudication.
I draw a clear distinction between domestic subcontracts that have a specific payment period longer than DOM/1 but which is adhered to by the main contractor, and those with shorter payment periods that in practice are not observed. If the specialist knows that it will definitely be paid after 30, or even 60, days, it can price accordingly. Although shorter payment periods are more desirable to maintain the cash flow of the whole supply chain, there is a clear difference between a prolonged but respected timescale and one that is not observed at all.
When I was writing my report in 1993 and 1994, main contractors made it clear that they did not like the payment provisions of DOM/1, which they thought were too short.
It is not surprising that they have since lengthened them. The real issue is whether they stick to them. If not, the subcontractor has new legal rights.
There is good reason to believe that many disputes are resolved between the parties simply by the threat of adjudication
The crux of the matter is whether they choose to use those rights. Adjudication is shaping up well as a speedy and inexpensive way of resolving disputes. Some firms put their toes in the water and found it was not too cold. Others are now following suit.
There is good reason to believe that many disputes are resolved between the parties simply by the threat of adjudication. That is all to the good. Adjudication could also resolve the dispute about whether “pay-when-certified” clauses comply with the Construction Act.
Lawyers differ on this, and their conflicting opinions have been reflected in Building. If specialists feel that “pay-when-certified” provisions do not provide a proper mechanism for payment, they can test them. If the adjudicator ruled against such clauses, the statutory scheme would come into force with its specific payment provisions. Such a decision would then either be referred on to the courts or else accepted by the parties. Self help of that kind is preferable to pressing new legislation on the government, which could take years, even if ministers agree to it.
The moans and groans with which I have least sympathy come from those who are not prepared to exercise their rights, but who expect the government to do it for them. Some firms say they will never be treated properly until it is a criminal offence to pay late or to pay any less than they demand. I have told these complainants that no government will introduce such legislation.
To those who do not wish to use their new rights because it might upset their clients, I ask why they want to work again for firms that have treated them badly. If they do not wish to exercise their new rights, preferring simply to moan instead, that is up to them. They will get no sympathy from me.
The proper route, as set out by Sir John Egan, is for effective supply-chain management based on partnering. Let us concentrate on that and avoid disputes. If they do arise, the Construction Act provides a speedy and relatively painless way for settling them.