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Payment Under the

Construction Act

Payment Under the Construction Act

Since 1st May 1998 the Housing Grants, Construction and Regeneration Act 1996 (the 1996 Act) has provided
Contractors and Subcontractors with a statutory right to payment for work done or services supplied under
a ‘Construction Act’.

On 1st October 2011 in England and Wales and 1st November 2011 in Scotland changes where brought to the
Housing Grants, Construction and Regeneration Act 1996 in the form of; Part 8 of the Local Democracy,
Economic Development and Construction Act (Construction Act 2009). A copy of this document can
be obtained from http://www.legislation.gov.uk

Prior to reviewing the payment provisions that have been revised under Part 8 of the Local Democracy,
Economic Development and Construction Act (Construction Act 2009) we draw your attention to the
following section:

Section 139 – Requirement for Construction Contracts to be in writing:

Within the Housing Grants, Construction and regeneration Act 1996 section 107 has been repealed.
Construction Contracts now no longer need to be in writing. Please note that the provisions that are relevant
to adjudication, costs and the slip rule still need to be in writing if you do not wish to be subject to the standard
default provisions that are set out in the Scheme.

This change means that the Construction Act will now apply to all Construction Contracts – those which are
wholly in writing, partly in writing or wholly oral. This change is seen as the most significant change to the
Construction Act 2009.

The provisions for payments have also seen widespread change within Part 8 of the Local Democracy, Economic
Development and Construction Act (Construction Act 2009).

The key areas of change to be noted are:

Under section 110 of the 1996 act a Contract was required to provide an adequate mechanism for determining
what payments had become due and when under the Contract. The Construction Act 2009 specifies that this
mechanism is not satisfied when the mechanism refers to the payment becoming due on the performance of
the obligations under another contract or a decision as to whether obligations under another contract have
been performed (Pay when Paid clauses). The Construction Act 2009 abolishes these “pay when paid” clauses.
These clauses where used to pass the debt risk of the Main Contractor down the chain to the subcontractors
and suppliers.

NASC January 2017

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With regards to Payment Notices The Construction Act 2009 has made changes to the notice regime,
introducing section 110A (under section 143). Contracts must now provide for the payer or a specified person
(Main Contractor), and the payee (Scaffolding Subcontractor or Supplier) to be able to give notice.
A payment notice must state the amount of the payment due and the basis on which that sum is calculated
even if the sum due is zero. If such notice provisions are not incorporated into the contract then the relevant
provisions of the Scheme shall apply as an implied term.

In circumstances where a Main Contractor fails to give a payment notice then section 110B (under section 143
of the Construction Act 2009) applies.

Section 110B allows the Scaffolding Subcontractor or Supplier to give notice in default. It is important to note
that the Scaffolding Subcontractors or Supplier’s application for payment, under section 110A, may be the notice
for the purposes of this section and as such a second notice under section 110B may not be required. Also of
note is that the Scaffolding Subcontractor or Supplier’s notice in default extends the final date for payment (i.e.
between the date when the payer failed to serve notice and the payee serving the notice). For example, if the
Main Contractor was due to issue a notice on the 1st of the month but fails to do so, and the Scaffolding
Subcontractor or Supplier issues a notice on the 6th of the month the final date for payment will be extended
by 5 days.

This extension has given rise to some concern that a Main Contractor could benefit from its own failure to
serve a notice and could be open to abuse. This is something to be particularly aware of.

Under the Construction Act 2009 Section 144 there is a requirement to pay the notified sum in accordance
with the payment notice or the Scaffolding Subcontractor or Supplier’s notice in default, except in
circumstances where the Main Contractor gives a notice to the Scaffolding Subcontractor or Supplier of an
intention to pay less than the notified sum.

Such notices must state the sum the Main Contractor considers is due and the basis on which the sum is
calculated. They must also be given not later than the prescribed period before the final date for payment.

It is essential that note is taken as to the effect of these changes on the right to suspend. Any failure by the
Scaffolding Subcontractor or Supplier to issue a payment notice in default will prevent them from suspending
in full or part its obligation to perform.

It is clear that the Construction Act 2009 requires Scaffolding Subcontractors and Suppliers to carefully
monitor the payment process in each contract to ensure that any defaults in issuing the required notices do
not adversely affect their cash flow.

Determining the amount of scaffolding work completed at any particular time can be very subjective. For
example some Scaffolding Subcontractors require 70% of the value to be paid on completion of erection and
30% upon dismantle while some employers may stipulate that payment will only be made when the scaffolding
is dismantled. Prior to commencing the works it is in the interest of the Scaffolding Subcontractor or Supplier
to obtain in writing the agreed percentage splits for valuing the erection and dismantle processes.

Whilst every effort has been made to provide reliable and accurate information, we would welcome any corrections to information provided by the Writer which
may not be entirely accurate, therefore and for this reason, the NASC or indeed the Writer, cannot accept responsibility for any misinformation posted.

NASC NASC, 4TH FLOOR, 12 BRIDEWELL PLACE, LONDON EC4V 6AP

TEL: 020 7822 7400 FAX: 020 7822 7401
enquiries@nasc.org.uk www.nasc.org.uk
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