Payment Under the Act (1996)
The Housing Grants Construction and Regeneration Act 1996 (the Act)
constitutes a remarkable (and possibly unique) intervention in very carefully
selected parts of the construction industry where by the ordinary freedom of
contract between commercial parties to regulate their relationships has been
overridden in a number of areas.
The three main construction related matters the Act deals with
are outlined below;
*payment provisions only
Section 110 – Dates for payment- states that:
(1) Every construction contract shall
(i) Provide an adequate mechanism for determining what payment becomes due under the contract, and when, and
(ii) Provide for a final date for payment in relation to any sum which becomes due. The parties are free to agree how long the period is to be between the date on which a sum becomes due and the final date for payment.
(2) Every construction contract shall provide for the giving of notice by a party not later than 5 days after the date on which a payment becomes due from him under the
contract, or would have become due if;
(a) The other party had carried out his obligations under the contract, and
(b) No set-off or abatement was permitted by reference to any sum claimed to be due under one or more other contracts, specifying the amount (if any) of the payment made or proposed to be made, and the basis on which that amount was calculated…
(3) If or to the extent that a contract does not contain such provision as is mentioned in subsection (1) or (2), the relevant provisions of the Scheme for Construction Contracts apply.
Section 111 – Notices of Intention to Withhold - states that:
(1) A party to a construction contract may not withhold payment after the final date for payment of a sum due under the contract unless he has given an effective notice of intention to withhold payment.
The notice mentioned in section 110(2) may suffice as a notice of intention to withhold payment if it complies with the requirements of this section.
(2) To be effective such a notice must specify -
(a) The amount proposed to be withheld and the ground for withholding payment, or
(b) If there is more than one ground, each ground and the amount attributable to it, and must be given not later than the prescribed period before the final date for payment.
(3) The parties are free to agree what that prescribed period is to be. In the absence of such agreement, the period shall be that provided by the Scheme for Construction Contracts.
(4) Where an effective notice of intention to withhold payment is given, but on the matter being referred to adjudication it is decided that the whole or part of the amount should be paid, the decision shall be construed as requiring payment not later than -
(a) seven days from the date of the decision, or
(b) The date which apart from the notice would have been the final date for payment, whichever is the latter.
Summary
Summarising, the Act satisfies its two main aims of improving cash flow and allowing the swift resolution of disputes in the following ways:
• Providing a statutory right to refer disputes to adjudication. The adjudicator's decision is binding until finally determined by legal proceedings or arbitration (where there is an arbitration agreement) [section 108];
• Providing the right to interim, periodic or stage payments [section 109];
• Requiring that contracts should provide a mechanism to determine what payments become due and when, and a final date for payment [section 110(1)];
• Requiring that the payer gives the payee early communication of the amount he has paid or proposes to pay [section 110(2)];
• Providing that the payer may not withhold money from the sum due unless he has given an effective withholding notice to the payee [section 111];
• Providing that the payee may suspend performance where a sum due is not paid in full for payment by the final date [section 112];
• Prohibiting ‘pay when paid’ clauses which link payment to payments received by the payer under a separate contract [section 113].