Consequences for Non-Compliance

The consequences for not complying with the payment regime under the Act, whether by not providing a valid payment schedule, or not paying the claimed amount or the scheduled amount by the due date for payment, may be serious.

Statutory debt – default liability

The primary purpose of the Act is to encourage and promote cashflow in the industry.

As far as the payer is concerned, the payment regime set up under the Act is ‘sudden death’. Should the payer not follow the correct procedure within the mandatory time, the payer becomes liable to pay in the interim the whole of the claimed amount, whatever the merits of the claim.

If a payer fails to provide an effective payment schedule, being one that satisfies the requirements of section 21 of the Act, within the time required by the relevant construction contract or, if the contract does not provide for the matter, within 20 working days after the payment claim is served on the payer, the payer becomes liable to pay the whole of the claimed amount on the due date for payment to which the claim relates pursuant to section 22 of the Act.

To be an effective payment schedule and to resist the harsh consequences of section 22 of the Act, the payer must state unequivocally an amount that the payer proposes to pay the payee in response to a payment claim and all areas of difference or dispute to enable the payee to properly assess its future options.

Failure to pay within the required time results in the amount claimed (or any unpaid scheduled amount) becoming a debt due on the due date for payment for which the payee can immediately sue together with the payee’s actual and reasonable costs of recovery.

In such cases, the payer is not entitled to any deduction by way of dispute, set-off, or abatement against the claimed amount.

Suspension of work

For commercial contracts entered into before 1 December 2015, if a payee serves a payment claim on a payer and:
 
  • the claimed amount is not paid in full by the due date for payment and no payment schedule has been provided by the payer; or
  • the payer provides a payment schedule in response to the payment claim and the payer fails to pay the whole of the scheduled amount by the due date for payment,

the payee is entitled to serve notice on the payer of the payee’s intention to suspend work, and to suspend work after five working days from the date of that notice if, as the case may be, the claimed amount or scheduled amount is not paid in full.

A payee under a residential construction contract entered into before 1 December 2015 may suspend work for non-payment only if the contract expressly provides that right and only then, after complying with the notice procedures prescribed under the contract.

For any construction contract entered into or renewed on or after 1 December 2015, if a payee serves a payment claim on a payer and:
 
  • the claimed amount is not paid in full by the due date for payment and no payment schedule has been provided by the payer; or
  • the payer provides a payment schedule in response to the payment claim and the payer fails to pay the whole of the scheduled amount by the due date for payment,

the payee is entitled to serve notice on the payer of the payee’s intention to suspend work, and to suspend work after five working days from the date of that notice if, as the case may be, the claimed amount or scheduled amount is not paid in full.

Download a sample notice of intention to suspend work here.

To view the procedure for recovering progress payments as a flow chart click here.
 

An Authorised Nominating Authority
under section 65 of the Construction Contracts Act 2002