Understanding contractual provisions can be complicated but a solid legal framework that also reflects fair payment guidance is essential
At the time of the government’s consultation on Building a Responsible Payment Culture (2013-2014) I commented on the balance between legislative intervention and the freedom to contract. At that time it was debatable whether further legislative intervention in contractual payment was desirable. Other commentators also expressed doubts. However, the driver of the time, which still prevails, is that the payment process still needs improving. Therefore, it is not surprising that we have seen further legislative change and government guidance as regards fair payment, albeit not as extensive as some may wish.
For payment to work effectively it is necessary for the parties to act properly. Facets of acting properly include good faith, appropriate skill and knowledge of the payment process. Where these attributes exist, few problems regarding payment should occur. Contract authoring bodies for their part can only specifically address the payment process but the simplicity or otherwise of that process has an impact on the ability for users to understand and apply its rules.
It is not surprising that we have seen further legislative change and government guidance as regards fair payment
There have been pleas for contracts to be made simpler and this also applies to their payment provisions. “Simplicity” does not necessarily mean “short”. The shortest way to deal with payment in a contract is to state only the price to be paid but is that the simplest? It is not. An understanding of the relevant law is necessary so that one can devise a means of compliance. Far better that all the relevant law, which in the case of payment constitutes a significant amount of legislation, is distilled into a standard contractual framework which also takes account of fairness and reflects the government’s fair payment guidance. That is the purpose of the payment provisions of the JCT suite of contracts.
Otherwise, one would be confronted with, among other things, the Housing Grants, Construction and Regeneration Act 1996 and its amendments, the Scheme for Construction Contracts 1998 as amended, the Late Payment of Commercial Debts (Interest) Act 1998 as amended by the 2013 Late Payment of Commercial Debts Regulations and more recently the Public Contracts Regulations 2015. Just finding the relevant parts can prove time consuming.
Some argue that understanding contractual provisions can be quite a task and consequently often look for short cuts to understanding for administrative functions. But that is very different to providing a solid legal framework that also reflects fair payment guidance.
So, for example, under the JCT 2016 Edition of contracts what is the payment process that has been distilled?
The process works on the principle of a common assessment date for all tiers in the contractual supply chain so that the main contractor, subcontractor and sub-subcontractors are all paid within a 30 day period from that date.
There have been pleas for contracts to be made simpler and this also applies to their payment provisions. ‘Simplicity’ does not necessarily mean ‘short’
This common assessment date is the interim valuation date (a defined term in the contract) and which is established at pre-contract stage and forms the basis of the contractual time framework. Although there is a common time framework the process of applications, notices and certificates varies to reflect whether or not there is an independent certifier. This article is concerned only where there is such a person.
The interim valuation date determines the due date for each interim payment which is the date seven days after the relevant interim valuation date. The interim valuation date is also the date at which the value of the works, and so on, is made for the purposes of establishing what is to be paid. It is distinct from the due date for interim payment which establishes the point at which time runs for the issue of an interim certificate and for establishing the last date by which payment must be made. An interim certificate should be issued within five days of the due date (12 days from the interim valuation date) and payment of each interim payment must be made within 14 days from that date (21 days from the interim valuation date). The amount to be stated as due in the interim certificate is the gross valuation calculated as set out in clause 4.14 (Standard Building Contract) as at the interim valuation date less the amounts referred to in clause 4.15 (Standard Building Contract) (for instance, retention, previous certificates, payment notice).
The amount stated as due must be paid within 14 days from the due date of the interim payment, unless the employer issues a payless notice in respect of that amount not later than five days before the final date for that payment. Where the employer issues a payless notice the payment due is not less than the amount stated in that notice.
Legislation and guidance increases the complexity of contracts but the use of the JCT process is still very much simpler than ploughing through vast tracts of legislative text to see what needs to be done.
Peter Hibberd is the past chair of the Joint Contracts Tribunal