Local Democracy, Economic Development and Construction Act 2009

Section 143 - Notices relating to payment

324. Section 143 amends the original legislation relating to “payment notices” and, in doing so, provides for the giving of similar notices by the contractor (the payee). Section 143 achieves this by repealing what was section 110(2) (subsection (2) of section 143) and inserting new sections 110A and 110B into Part 2 of the 1996 Act (subsection (3) of section 143).

325. New section 110A(1) provides that a construction contract is to contain either:

• a provision which, in relation to every payment, requires the payer (or a “specified person”) to give the payee a “payment notice”; or

• a provision requiring the payee to give the payer (or a “specified person”) a “payment notice”;

and in either case, requires the notice is to be given at most five days after the payment in question becomes payable.

326. A “specified person” is defined at new section 110A(6) – such a person is one identified in the construction contract or one “determined in accordance with” terms in the contract (for instance, terms allowing the payer subsequently to notify the payee of the appointment and identity of such person). In practice, a “specified person” is generally an architect or engineer: someone qualified to value construction work.

327. New section 110A(2) prescribes the contents of a “payment notice” given by the payer (or a “specified person”) to the payee. Such a notice is to identify the sum which the payer (or the “specified person”) believes is payable (by the payer) on the date that the payment concerned becomes payable (or, where some or all of that amount has been paid before the notice is given, the sum that would have been payable on such date). Such a notice is also to explain how that sum has been arrived at - for instance, by identifying any relevant moneys paid before the payment concerned actually became payable, or by identifying any set-off or abatement applied by the payer.

328. New section 110A(3) prescribes the contents of a “payment notice” given by the payee to the payer (or to a “specified person”). Such a notice is to identify the sum which the payee believes is payable (to the payee) on the date that the payment concerned becomes payable (or, where some or all of that amount has been paid before the notice is given, the sum that would have been payable on such date). Such a notice is also to explain how that sum has been arrived at.

329. The effect of new section 110A(4) is to ensure that, even where, in relation to any payment, the payer or, as appropriate, the payee, considers that no sum is actually payable, a “payment notice” to that effect must still be given. Such a notice is also to explain (for instance, because of any set-off or abatement) why no sum is believed to be payable.

330. New section 110A(5) provides that where the parties to a construction contract fail to include terms in their contract for the giving of a “payment notice” pursuant to new section 110A(1), the appropriate provisions of the relevant Scheme for Construction Contracts will apply. (The consequence of this is that terms providing for the giving of a “payment notice” by the payer to the payee will take effect as implied terms of their contract.)

331. In addition to the definition of “specified person”, new section 110A(6) defines what is meant by “payee”, “payer” and “payment due date”.

332. New section 110B applies in a case where the parties to a construction contract have said in their contract that the payer (or a “specified person”) is to give the payee a “payment notice” (at most five days after payments become due) and, in relation to a particular payment, no notice is actually given (or, if given, is late). New section 110B also applies in a case where the parties have failed to make provision in their contract for the giving of “payment notices” (such that the relevant Scheme for Construction Contracts has implied a payer “payment notice” term into the contract), and, in relation to a particular payment, no notice is actually given (or, if given, is late). In other words, new section 110B addresses the situation of a payer failing to serve a payment notice as required either by an express or by an implied term of the contract.

333. The effect of subsection (2) of new section 110B is (generally speaking) to allow the payee to give the payer a “payment notice” instead (one which complies with the requirements (as to content) of a “payment notice” given by a payee in cases where parties to a construction contract have agreed in their contract that it is the payee who gives this notice). A notice like this given by a payee in default of a payer’s (or “specified person’s”) “payment notice” may be given at any time after the date by which the payer (or “specified person”) ought to have given the “payment notice”.

334. New section 110B(3) is a provision to postpone the “final date for payment” of a relevant sum where, pursuant to new section 110B(2), the payee serves a notice in default of the payer (or “specified person”) giving a “payment notice”. The effect of this new provision is to postpone the final date for payment of the sum in question by the same number of days after the date by which the payer (or “specified person”) ought to have given the “payment notice”, as the number of days after that date that the default notice was given. If, for example, a sum becomes payable on the 2^nd day of the month (such that the date by which the “payment notice” should have been given was the 7^th day) and must be paid, at the latest, on the 17^th day, the effect of a payee’s notice in default served on the 14^th day would be to postpone the date on which the relevant sum must finally be paid to the 24^th day of the month (17 +7 = 24).

335. Subsection (4) of new section 110B provides that where the parties had agreed in their contract that the payee was to notify the payer (or a “specified person”) of the sum that the payee believed was due in relation to a payment and of how that sum was arrived at (what in the construction sector is known as a payee’s “application”), such a notification is deemed to be a notice given pursuant to new section 110B(2) and, indeed, the payee cannot give a notice pursuant to new section 110B(2) in such a case.

336. Subsection (1) of section 143 makes a consequential amendment to bring the wording of section 109(4) into line with that used in new sections 110A and 110B.