Construction World January 2019

MARKETPLACE

CONTINUED LATE PAYMENTS got you down?

It is common for contractors to be faced with their employers not paying them on time or, even worse, not paying them at all. Yet a number of contractors continue working for free, potentially putting themselves at risk of over-indebtedness or even closing their businesses. W hy is this? Because in most cases, their contracts do not offer them any relief for late payments.

At MDA Attorneys, we deal with construction contracts daily and we are increasingly seeing more of our clients entering into contracts with completely unfair terms, simply to ensure that they secure the work. The issue of late payment can be avoided, or at least mitigated, if you ensure that the contract includes the appropriate remedies. It is a great pity that many employers seem to be getting away with deleting these remedies from contracts. To protect yourself, don’t wait until it’s too late and you are forced to face continued late payment. Instead, before you enter into a contract, know what appropriate clauses should be included for your protection. Standard forms of contract contain several remedies to assist contractors in the event of late payment. Check that these clauses are not manipulated or deleted by your employer. The FIDIC Red Book, for example, has several clauses that offer relief. Pay particular attention to any amendments to or deletions of these clauses. Suspension (Sub-clause 16.1) In terms of this clause, contractors are entitled to suspend the works should their employer fail to make timeous payment. This is especially effective when employers (or contractors if you are a subcontractor) have their own deadlines to meet under threat of penalties. In these circumstances, they will often speedily make payment upon any word of suspension. Meanwhile, as a contractor, you are able to mitigate costs and claim any costs incurred as a result of the suspension via a contractor’s claim (sub-clause 20.1). We often see employers deleting this clause from contracts or extending the notification period so far that it renders this remedy futile, which is a less obvious way to avoid this clause. Look out for this in the particular conditions of your contract. Employer’s financial arrangements clause (Sub- clause 2.4) In terms of this clause, contractors can request reasonable evidence from employers that financial arrangements have been made to ensure that the contract price can be paid. At first glance, this may seem like a wasteful exercise. It is not. The contractor is entitled to terminate the contract if an employer fails to provide reasonable evidence. Essentially, it allows contractors to terminate the contract if they suspect that the employer may not be able to pay, rather than having to wait until the employer actually doesn’t. Employers often delete this clause. If you can, insist on its inclusion. Termination (Sub-clause 16.2) In terms of this clause, contractors are entitled to terminate the contract in the event of non-payment. Thereafter, contractors are entitled to payment in terms of sub-clause 16.4, which includes

By Kelly Stannard, Associate at MDA Attorneys

an entitlement to loss of profit or other loss or damage. It is common for employers to delete clauses detailing a contractor’s right to terminate in the event of non-payment. As with suspension, ensure that your employer has not used the tactic of extending the notification time periods so far that this relief is no longer effective. In addition, make sure that your employer does not indirectly make this relief worthless by deleting your right to receive payment upon termination. Not only do you need to be able to terminate, but you need to be able to claim payment to recover your losses. Also, never terminate a contract without legal assistance. Not only must specific procedures be followed, there are some legal intricacies that have a significant influence on whether the termination is legally valid. If a contract is incorrectly terminated, you could be accused of repudiating the contract and damages may be sought from you. Interest (Sub-clause 14.8) Contractors can claim interest in the event of late payment. While this doesn’t solve a payment problem, it can mitigate costs somewhat. Ensure that this clause is not deleted, that the interest rate is not reduced and that a claim for interest is included in monthly applications for payment so that the employer knows you mean business. These are just some of the ways in which you can protect yourself from late or non-payment. The standard forms of contract, left as is, are generally fair to both parties and provide contractors with the protection they need. Should your employer use a bespoke contract, be especially alert as you may not be as familiar with the terms. It is worth investing in having a professional review unfamiliar terms. In the long run, it will be much more cost effective to do so than dealing with a situation where you are not getting paid and you have no contractual relief to come to your aid . 

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CONSTRUCTION WORLD JANUARY 2019