My client, a sub-contractor, is working under an oral construction contract and wants to get paid. I know that the Scheme for Construction Contracts 1998 applies, but reading the Scheme by itself leaves me with unanswered questions about the payment process. What am I missing?
The Construction Act and the Scheme
Since 1 October 2011, in England and Wales, Part II of the amended Housing Grants, Construction and Regeneration Act 1996 (Construction Act 1996) has applied to all construction contracts, whether they are in writing, partly in writing, or entirely oral.
If a construction contract does not provide for certain terms, the Scheme for Construction Contract 1998 steps in to fill the gaps. Regarding adjudication, the statutory mechanism of the Scheme applies on an “all or nothing” basis. Regarding payment, the Scheme can “fill the gaps”. This post focuses on payment.
(All our references to paragraphs are to the paragraphs of Part II of the Scheme, as amended. All our references to sections are to sections of the Construction Act 1996, as amended.)
Simple contract with nothing in writing
If two parties (for example, a main contractor and sub-contractor) have a simple construction contract, with nothing in writing, they could still have agreed all the key payment terms verbally. However, we assume that, while they have agreed what work is to be done (a specification), when (a start date and planned finish date) and how much it will cost (a price), they have not agreed any other terms.
We also assume that the works will be carried out over 45 days or more, allowing the sub-contractor to apply for stage payments (section 109).
Does the Scheme set out everything you need on payment?
Using the Scheme, the parties can determine:
- The sum the payer should pay in a stage payment (paragraph 2).
- When a stage or final payment becomes due (paragraphs 4 and 5).
- On the face of it, the final date for payment (paragraph 8).
- That the payer should give the payment notice (paragraph 9).
- The timing of any pay less notice (paragraph 10).
- Set out what to do if the payer does not give a payment notice.
- Repeat the statutory definition of the notified sum or the statutory obligation to pay the notified sum on or before the final date for payment (section 111).
Example: payee’s default notice
If our sub-contractor wants to get paid its first stage payment, it should first make a “claim” (paragraph 4). Following that:
- If the claim falls seven or more days from the end of the first 28 day period referred to in the definition of “relevant period”, the due date for payment falls when it makes that claim (paragraphs 4 and 12).
- Paragraph 2 sets out what is due.
- The contractor “must” give a payment notice five days after the due date (paragraph 9).
- The final date for payment will be 17 days from the due date (paragraph 8), plus the number of days after the date the contractor should have given its payment notice (due date plus five days) that the sub-contractor gives its default notice (section 110B).
- The final date for payment will be 17 days from the due date (paragraph 8).
Missing a trick?
We will leave it to you to decide whether the Scheme doesn’t go far enough. Whatever your view, if you are dealing with an oral contract or a written contract with missing pieces of the payment jigsaw, remember to read the Scheme and the Act together.