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The Construction Act has been an important part of construction law since it came into force in 1998. It was substantially amended by Part 8 of the Local Democracy, Economic Development and Construction Act 2009, which:
Of particular relevance to sub-contractors was the prohibition of conditional payment provisions, so called “pay-when-paid” and “pay-when-certified” clauses. Prior to the legislation coming into force, conditional payment clauses were considered the norm and often featured in sub-contracts. Pay-when-paid clauses place sub-contractors in a vulnerable position, relying upon the main contractor receiving payment to receive their payment. Likewise, pay-when-certified clauses, where payment to a sub-contractor may be dependent upon the issue of certificates in relation to the main works, including a practical completion certificate, allow a main contractor to deny payment to a sub-contractor, often long after the sub-contract works have been completed.
Under Part 8 of the Local Democracy, Economic Development and Construction Act 2009, a payment clause is invalid if it makes payment conditional upon the performance of obligations under another contract or a decision by any person as to whether obligations under another contract have been performed. This legislation therefore put an end to the legality of the commonplace pay-when-paid and pay-when-certified clauses. The only exception to the rule is in the event of upstream insolvency, i.e. where a developer becomes insolvent.
The effect of the legislation is to remove the conditional payment clause from the contract and replace it with the relevant payment provisions in the Scheme for Construction Contracts.
Despite this legislation having been in force for close to a decade, we continue to see conditional clauses in contracts, and main contractors and sub-contractors alike appear not to appreciate that these clauses are not permitted even though sub-contractors can be significantly disadvantaged by these clauses. For example, where a sub-contract makes a release of retention conditional upon the certification of practical completion and the main works are then delayed, the sub-contractor’s payment is also further delayed, sometimes by a significant period.
For sub-contractors, it is essential to check the wording of sub-contracts to ensure that the contractor removes any conditional payment clauses to avoid any payment disputes down the line or to consider the validity of these clauses if they are included and payment is withheld. Proper legal advice before entering into contract can save unnecessary difficulties during and after the works.
At Myerson, our Construction Team offers advice on all aspects of contentious and non-contentious issues, acting on matters ranging from home extensions to large commercial developments. For more information on the range of legal services we can provide, please call Myerson’s Construction Team on 0161 941 4000 or email firstname.lastname@example.org.