Lord Denning said in Modern Engineering (Bristol) Ltd vs Gilbert Ash (Northern) Ltd 1973 that “cash flow is the lifeblood” of the construction industry – a sentiment that is particularly apposite where parties feel they are not being paid enough or on time. There have been a plethora of reports on the ills of the industry featuring cash flow related problems.

“What is needed [to improve cash flow] is an agreed procedure to ensure that payments are made regularly and promptly,” said the Banwell Committee in 1964. Fast forward to the two Latham reports, which retrod the familiar ground of cash flow. At last, we got an outcome in terms of adjudications and payment provisions in the 1996 Construction Act, subsequently amended in 2009. Throw in a non-construction piece of legislation, the Late Payment of Commercial Debts (Interest) Act 1998, setting a penal rate of interest, and we had all the ingredients to ensure prompt payment – cash flow at last.

Despite the courts having revealed weaknesses in the drafting of the 2009 legislation, and how applying the payment rules has accordingly become more difficult, payment has improved overall as a result of Latham.

Read more …