Many people are familiar now with the effect of clause 110 of the Housing Grants, Construction and Regeneration Act 1996 (“the Construction Act”). Under this clause, every construction contract must include an adequate mechanism for determining what payments become due under the contract - and when - and provide for a final date for payment in relation to any sum which becomes due.
If, or to the extent that, a contract does not contain such provisions, the relevant provisions of The Scheme for Construction Contracts (England and Wales) Regulations 1998 (“the Scheme”) apply. You may be used to comparing these provisions to the payment mechanism on which you rely for your interim payments, but have you also looked at how clause 110 may apply to any retention provisions in your sub-contract?
If you are a sub-contractor, the following two example clauses may look familiar to you:
Example 1: Within 14 days of receipt of a certificate or other relevant notification under the Main Contract which includes a sum in respect of the retention or any part thereof under this Agreement (“the Retention Notice Period”) the Contractor shall give written notice to the Sub-Contractor specifying the amount of retention then due to it and the basis on which that amount has been calculated. The said sum shall become due to the Sub-Contractor on the day following the expiry of the Retention Notice Period and the final date for payment of that sum shall be 17 days after it becomes due subject to Clause 8.4 [set-off].
Example 2: Within 28 days of the date of issue of the Defects Correction Certificate under the Main Contract, there shall be due to the Sub-Contractor the second half of the retention monies under the Sub-Contract.
In effect, these clauses state that the recovery of outstanding retentions is dependent upon the operation of provisions under another contract, i.e. the main contract. Such clauses may be capable of being challenged if they are contrary to the provisions of the Construction Act.
The payment provisions in the Construction Act are structured on the basis that the payee must have contractual certainty as to the timing of payment and the circumstances in which he becomes entitled to payment. The two examples given above are unlikely to qualify as an “adequate mechanism”. In example 2, the sub-contractor will not know the date when the Defects Correction Certificate will be issued under the main contract, has no control over the issue of such certificate, and has no redress if the certificate is delayed or not issued at all.
If your sub-contract does not comply with the Construction Act, then the Scheme applies. The final payment becomes due on the expiry of thirty days following completion of the work or the making of a claim by the payee, whichever is later. If the outstanding retention is not tied in with the final payment, it will become due on the expiry of seven days following completion of the work, or on the making of a claim by the payee, whichever is later. The final date for payment is seventeen days from the due date for payment.
If the main contractor does not agree with your interpretation of the sub-contract, then adjudication may be an appropriate, quick and relatively inexpensive dispute resolution process if the issue to be decided is limited to the question of adequacy, or otherwise, of the sub-contract retention release clause(s).
This article was first published in Construction News Update, Spring 2010.
