senior managing director brewer consulting...brewer consulting contractors payment claims obtaining...
TRANSCRIPT
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Geoff BrewerGeoff BrewerSenior Managing Senior Managing
DirectorDirector
Brewer ConsultingBrewer Consulting
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Contractors Payment Contractors Payment
ClaimsClaims
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Obtaining payment and how the Obtaining payment and how the
market has changedmarket has changed
• Vital importance of payment
• Payment provisions – Contractual or Statutory
• Contract price dealt with differently by different
contracts
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Contractual Payment Contractual Payment
ProvisionsProvisions
• Instalments provided for in most contracts
• Value of work properly carried out, stated in certificates
• Employer’s obligation to pay, subject to rights to
cross claim
• Contractual procedure to be followed
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Improving Cash FlowImproving Cash Flow
• Mobilisation payments
• Working capital to get the ‘show on the road’
• Price discount negotiated by payer
• Surety bond required
• Less readily available in recession
• Manufactured goods and materials off site
• Optional payment provisions
• Popularity decreases when work becomes scarce
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Improving Cash FlowImproving Cash Flow• Escrow accounts
• Assist in financial security for contractor
• Escrow has ring fenced funds for 2-3 months payments
• Escrow agent acts as stakeholder for both parties
• Contractual right to suspend or terminate employment
• Affected by lack of project funds
• Retention bonds
• Provided by Surety in lieu of retention
• Optional in JCT contracts
• Some increased administrative burden on contractor
• Government drive to ban retentions
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Improving Cash FlowImproving Cash Flow
• Recovering interest on late payment
• Payment of interest in some standard forms
• Statutory ability to claim interest where no contractual
provision
• Late Payment of Commercial Debts (Interest) Act 1998
• Used in dispute resolution proceedings
• Ownership and title in materials
• Contractual provisions to reduce exposure in event of third party insolvency
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The Construction Act andThe Construction Act and
Sections 110 & 111Sections 110 & 111
• The Construction Act
• Applies to every construction contract for purposes of
construction operations
• Specific payment provisions required
• Failure to provide imports the Scheme
• Interim and stage payment provisions
• Adequate mechanism - Final date for payment
• Parties free to agree periods
• Scheme provides for 28 day intervals, a set valuation method
and 17 day period between due date and final date for
payment
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Statutory Payment Notification Statutory Payment Notification
(Section 110)(Section 110)• The Act requires payment notice no later than 5 days after
due date
• Most standard forms keep to 5 days
• Effect of failure depends on contract terms
• Considered to be ‘without-teeth’
• No sanction for failing to provide notice
• Receiving party entitled only to be paid what is properly due
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Withholding Notice (Section Withholding Notice (Section
111)111)• The Act requires a withholding notice where withholding
from an otherwise due amount
• No maximum or minimum period stated in the Act
• Under the Scheme, period for issue is not later than 7 days
before the ‘final date for payment’
• Compliant clause could state not later than 1 day
• Withholding notice required where set-off is to be withheld
• May be necessary where abatement is to be taken into
account
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Suspension for nonSuspension for non--paymentpayment
• Statutory right where payment not made by final date for
payment (Section 112)
• Default position provided by the Act
• Procedure must be followed
• Ensure relevant conditions are satisfied before suspending
• Extension of time for period of direct delay caused by valid
suspension
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Variations and Delay MattersVariations and Delay Matters
• Variation clauses are standard fare
• Commonly changes are not permitted which ‘go to the root of the contract’
• Definition and procedure for issuing of variations varies from contract to contract
• Recovery without written variation orders
• Condition precedent clauses
• Adhere to contract mechanisms
• Valuation procedure
• Must obtain maximum value within rules of the contract
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Delay MattersDelay Matters
• Project delays and categorisation of events
• Extension of time provisions
• Subject to procedures and proof
• Condition precedent clauses
• ‘Upfront’ mechanism to allow additional time
• Time is money
• Must be able to recognise, claim, demonstrate and fully
evidence entitlements
• Delay analysis trends
• Content and quality of information
• Vigorous pursuit in economic downturn
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Payment Regime Payment Regime –– Likely Changes in Likely Changes in
20092009• Proposed amendments to the Construction Act• Draft Construction Contracts Bill 2008
• Improve transparency and clarity relating to payments
• Encourage adjudication by widening Act’s ambit
• Improve suspension rights
• Changes to payment regime
• Replace existing sections 110 &111
• New S110A payment notice setting out ‘sum due’
• Can take account of cross claims
• New S111 notice
• Clarifying the use of pay when paid clauses
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Payment Regime Payment Regime –– Likely Changes Likely Changes
in 2009in 2009
• Section 110A notice
• Not later than 5 days after payment due date
• Payee can issue payment notice in default
• Section 111 notice
• Provides second opportunity for payer to consider and apply cross claims
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Likely Changes in 2009Likely Changes in 2009
• Adjudication provisions
• Widen access - adjudication permitted on oral and partly oral/ partly written contracts
• Prevents agreements that interim payment decisions will be conclusive
• Parties costs agreement can only be made after adjudicator appointment
• Improve and reinforce suspension rights
• Suspending party can claim costs and consequential delay