Although the law relating to Payment and Pay Less Notices has been with us for more than 5 years I still meet people who do not understand the law and what it means for the small sub contractor.
Essentially a Sub Contractor or Contractor working on commercial work (not for an owner occupier unless a written contract provides otherwise) will usually have its work valued every month or make an application for payment by its Employer.
When the Contractor/Sub Contractor makes an application for payment, the Employer must issue a Payment Notice setting out its valuation of the application with grounds for the valuation within 5 days of the due date of the application (unless otherwise altered by the contract).
The valuation in the Payment Notice is known as the “Notified Sum”. The Notified Sum will be paid to the Contractor/Sub Contractor unless the Employer serves a Pay Less Notice indicating what sums it intends to deduct from the Notified Sum when making payment to the Contractor/Sub Contractor and the grounds on which such deductions are to be made. The Pay Less Notice must be served no later than 7 days before the Final Date for Payment (unless otherwise altered by the contract).
If the payment mechanism requires the Employer to issue a valuation and the Employer fails to do so then, any time after the Employer could have issued the valuation the Contractor/Sub Contractor can send to the Employer its own valuation as a “Default Payment Notice”. If the Employer does not issue a Payment Notice in respect of the Default Payment Notice it will be payable in full unless the Employer serves a Pay Less Notice in respect of the Default Payment Notice.
Applications have to be in the correct form otherwise there is no need to serve a notice in respect of the application. The application must show the total value of the work completed to the valuation date and the total sums actually received to that date so that the application shows the sums actually due on the valuation date. It is not sufficient to show “sums previously applied for”, unless the application shows the sums actually received it will not show the sums actually due on the valuation date.
The right to receive Payment and Pay Less Notices is implied to all Construction Contracts after 2011 whether or not they were made in writing. A verbal agreement or a contract based on an exchange of emails will have the notice provisions implied into them every bit as much as a 10 page written agreement.
If the Contractor/Sub Contractor submits an application in the proper form and in accordance with its contract which is not met with the required notices from the Employer, the Contractor/Sub Contractor can seek an award from an adjudicator requiring the Employer to pay the sums due under its application.
Adjudication is a quick, inexpensive and safe procedure. Disputes can be resolved in 4 to 6 weeks without exposing a company to a claim for legal costs if it loses the adjudication and typically at a cost of £3000 - £5000 plus vat. Adjudication is far quicker and cheaper than court proceedings.
Unfortunately it is not possible to claim the costs of the adjudication from the Employer so that the costs will have to be deducted from the sums receivde from the Employer. This can be a significant deterrent in low value adjudications when the costs can be a significant proportion of the sums claimed.
Clients of the National Legal Consortium can take (or defend) adjudication proceedings for all sums over £7500 and only have to pay the fee to be paid for the nomination of an adjudicator (typically £425). All the other work is undertaken as part of the service obtained for the monthly agreed fee of as little as £150 plus vat per month.
In this way the NLC unlocks the ability to claim for sums that would otherwise be uneconomic to pursue.
For more information about the National Legal Consortium visit www.nlcuk.net or call David Jackson on 0800 085 7772.