Payment notices – the changes
29/09/2011
By Chris Whittington, Consultant and Head of Construction & Engineering.
The changes to the Construction Act include changes to the notice provisions relating to payments. In essence those changes are:
Re: Payments due
- Current procedure:
The payer is obliged to issue a notice (a Section 110 Notice) within five days of the due date specifying the amount (if any), of the payment to be made and the basis of the calculation. There is no sanction for failure to comply.
- A construction contract must require a payment notice (a Section 110A Notice) to be given by the payer, the payee, or a ‘specified person’ (e.g. and architect or project manager), still within five days of the due date; it is to be given even if the sum due is zero.
- An important new provision is that if the payer or specified person fails to issue a S110A Notice within the proper time or at all, now the payee can issue a default notice (a Section 110B Notice) stating the payments to be made and the basis of calculation.
- If a S110B default notice is issued, the final date for payment is delayed by a period equal to the time between the date the payer or specified person should have served the S110A notice and the actual date of service of the S110B default notice.
- A payee’s application for payment can, if properly constituted, act as the S110A payment notice, in which case there would be no need to issue a further default notice – in fact the payee in such circumstances is not permitted to issue a further notice.
Re: Payment reduction
- Current procedure:
If the payer wishes to reduce the amount to be paid from what has otherwise been certified/determined as payable, the Construction Act requires the issue of a ‘Notice of Withholding’ (under Section 111), stating the amount being withheld, the ground for withholding and if there is more than one ground the nature of each ground and the amount being withheld in relation to each ground. The Notice of Withholding must be given no later than the period before the final date for payment prescribed by the contract (in default, seven days).
- Where there is to be a reduction in the amount to be paid by the final date, the payer (or, if applicable, specified person) must issue a notice. This notice is still issued under Section 111 but is now called a ‘Pay Less Notice’ rather than a ‘Notice of Withholding’.
- The Pay Less Notice must as before be given by no later than the prescribed period (in default, seven days, again as before).
- Whereas before the Construction Act expressly required the ground or grounds to be set out and the amount to be withheld to be applied to each ground, now the payer or specified person is required in the Pay Less Notice to set out the (reduced) sum that the payer (note: not specified person) considers due and the basis of the calculation. It is difficult at this stage to determine whether, and if so to what degree, this change of wording will lessen the detail required to justify any reduction.
- NOTE: If the payee has served a S110B default notice and the payer/specified person fails to issue a Pay Less Notice in time or at all, then the amount stated in the default notice (or payment application, if relevant - see 1.2.4 above) is the sum to be paid to the payee.