Oral contracts – default payment provisions under the scheme

29/09/2011

By Chris Whittington, Consultant and Head of Construction & Engineering.

Where there is an oral construction contract which does not contain Construction Act compliant payment provisions the Scheme for Construction Contracts Regulations 1998 (as amended) will import the necessary provisions by default. The position is the same for construction contracts which are wholly or partly in writing. To the extent of the construction contract (whether oral, written or otherwise) fails to incorporate all of the relevant compliant payment provisions, the Scheme will apply.

In essence the default provisions under the revised Scheme are:

  1. The Scheme allows a payee to claim instalments every 28 days – “the relevant period”
  2. The payee is to make a claim for payment.
  3. The due date for an interim payment is the later of the expiry of 7 days from the end of the relevant period or the “making of a claim [for payment] by the payee”.
  4. The due date of the final payment is the later of the expiry of 30 days following completion of the work or the payee’s claim for final payment.
  5. The final date for payment is 17 days from the due date.
  6. The payer must give a payment notice not later than 5 days after the due date stating what the payer considers to be due and the basis of calculation.
  7. If the payer intends to pay less than otherwise due, he must give a Pay Less Notice not later than 7 days before the final date for payment. Such a notice must comply with section 111(3) of the Construction Act as amended and set out the [reduced] amount to be paid and the basis of calculation.
  8. Note that in the ‘Interpretation’ section of the Scheme (as amended) the “making of a claim by the payee” means giving a written notice by the payee to the payer specifying the sum considered due and the basis of calculation. This includes a notice given (whether pursuant to section 110B(2) or (4) of the Act or otherwise” – essentially a payee’s default notice. This suggests that if the payer fails to issue the payment notice (see 6 above) within the proper time or at all, the payee can issue for the purposes of the Scheme, a default notice under S110B. It will presumably follow (in accordance with the relevant provisions of the Act as amended) that if a default notice is served the final date for payment is thereby postponed by the equivalent period between when the payer should have issued the payment notice and the actual date the default notice was issued.