Top tips for sub /contractors facing delayed or non-payment
Getting paid in the construction industry continues to be a hot topic. Delayed or withheld payments are common and have been linked to a sharp increase in construction insolvencies, with a report showing that around 28% of all insolvencies in 2023 in the UK construction sector were due to late payments. The good news is that there are legal remedies available when problems arise. B P Collins’ specialist construction disputes team explores some of the options available to you when you’ve not been paid.
Right to suspend performance
One of the most practical remedies for non-payment is the right to suspend work. But be warned, there is no common law right to suspend. You must rely on a contractual or statutory right.
For example, s.112 of the Housing Grants, Construction and Regeneration Act 1996 provides a right to suspend performance of a sub/contractor’s obligations under the contract if a notified sum has not been paid by the final date for payment. However, before suspending works, the sub/contractor must give at least seven days’ written notice of the intention to suspend and provide the grounds for doing so.
It’s crucial that any notice complies with any contractual or statutory notice requirements and that you calculate the number of “days” properly. A defective notice may not only be invalid but could put the sub/contractor in breach of contract themselves.
Once full payment is received, the right to suspend ends. You may also be entitled to recover reasonable costs for winding down and remobilising.
Adjudication
Adjudication is a statutory right available in all construction contracts, and a dispute can be referred to adjudication at any time. Adjudication was designed to keep cash flow moving in the construction industry and is one of the principal means of resolving construction disputes.
Adjudication is less formal and much quicker and cheaper than traditional litigation which means it is and continues to be, a popular form of dispute resolution for sub/contractors. An adjudication takes between 28-42 days from start to finish (not including any enforcement).
Unlike in traditional litigation, an adjudicator cannot order one party to pay another’s costs. That might seem unfair if you are the successful party, but it cuts both ways: there is no adverse costs risk in the event you are unsuccessful.
The courts are generally supportive of adjudication to resolve disputes and will only interfere with an adjudicator’s decision and decline to enforce it on certain narrow grounds, such as the adjudicator lacked jurisdiction or there was a breach of natural justice in how the adjudication was conducted.
If you would like advice on a construction issue, please get in touch with our dispute resolution team by email or by phone on 01753 889995.
Litigation
Adjudication might not always be appropriate. For example, there might be several different disputes or cross-claims to resolve and you can only refer one to adjudication at any time. Also, the nature or complexity of the issue might be suited to being determined by a court at a trial with the benefit of detailed pleadings, disclosure and evidence. The significant advantage of litigation over adjudication is the prospect of recovering your costs from the other side. At the time of writing it may take two years, if not more, for a claim to get to trial.
Insolvency
If you’re owed more than £750, and the debtor cannot pay, you might consider insolvency proceedings – winding up a company. However, insolvency proceedings are not appropriate if the debt is genuinely disputed on substantial grounds or if there is a cross-claim which would extinguish the debt. If you pursue a winding-up petition in those circumstances the decision could backfire and you have to pay the other side’s costs. It is suitable only where liability is clear and undisputed.
It may be more appropriate to serve a statutory demand first, which is a formal written demand for payment of a debt. If the debt is still not paid after 21 days then it can be used as evidence that a party is unable to pay its debts.
Alternative dispute resolution (ADR)
Adjudication, litigation and insolvency produce binding decisions by a third party (in the case of adjudication it is interim-binding). Instead of, or in addition to these processes, you might consider a negotiated settlement. This might be at a roundtable meeting or a formal mediation. Mediation is a consensual process option, where a neutral third party (the mediator) helps broker a settlement. It is highly effective. The mediator does not decide the case or make any decisions. Rather, they help the parties explore the issues and identify areas of agreement and areas of dispute to try and narrow and hopefully reach a settlement. Mediation can take place at any time. It can help to take the heat out of a dispute and typically has a high success rate, as parties must agree to mediate and cannot be forced into it. Parties should therefore attend in good faith. A well timed, successful mediation at an early stage of a dispute can be much more cost-effective compared to litigation or adjudication.
Interest
With any claim for an unpaid debt, do not forget interest. Whether that is a contractual right to interest or a statutory one – for example if it is a qualifying debt under the Late Payment of Commercial Debts (Interest) Act 1998.
In the construction industry, cash flow is king. If you’re not getting paid, don’t delay. ADR, adjudication and insolvency can be powerful tools to resolve the issue, but they must be used correctly and at the right time. B P Collins’ dispute resolution team can advise, helping you to both protect your business and get the money you’re owed. Please call 01753 889995 or email enquiries@bpcollins.co.uk or further information.
