{"id":87305,"date":"2021-01-13T07:00:15","date_gmt":"2021-01-13T07:00:15","guid":{"rendered":"https:\/\/www.pbctoday.co.uk\/news\/?p=87305"},"modified":"2021-01-15T11:39:24","modified_gmt":"2021-01-15T11:39:24","slug":"payment-in-construction-contracts","status":"publish","type":"post","link":"https:\/\/www.pbctoday.co.uk\/news\/planning-construction-news\/payment-in-construction-contracts\/87305\/","title":{"rendered":"Clarity in return for cash flow: Interim applications for payment"},"content":{"rendered":"

A recent Technology & Construction Court case has underlined the importance of being clear on payment regimes and mechanisms in contracts. Ryland Ash and Alexander Creswick of law firm Watson Farley & Williams<\/a> take a look<\/h2>\n

In RGB Plastering Limited v Tawe Drylining and Plastering Limited, the English Technology & Construction Court<\/a> (TCC) has reaffirmed the now well-established principle that, in order to be valid, payment applications submitted by contractors must comply in substance, form and intent with the requirements of the contract to which said applications relate.<\/p>\n

The decision promotes certainty for employers, who face draconian consequences if they fail to respond to payment applications in the way required by the relevant contract. It also highlights to contractors that they must ensure that they comply with all contractual requirements when issuing payment applications, or those applications will likely be invalid.<\/p>\n

Moreover, the decision confirms that it will usually be very difficult for a contractor to rely on the fact that an employer has already paid sums in respect of defective payment applications if the employer then decides to dispute a payment application on the basis that it is non-compliant with the contract.<\/p>\n

Background<\/h3>\n

The minimum provisions for interim payments set out in the Housing Grants (Construction & Regeneration) Act 1996 (the Construction Act) are crucial to addressing cash flow issues in the construction industry. This has become all the more so during the Covid-19<\/a> pandemic, when contractors\u2019 cash flows have been stretched even further than usual. Interim payment mechanisms promote efficient and timely remittance of amounts owed to the contractor as they become due. The most common interim payment regimes require the contractor to submit an interim payment application to the employer according to an agreed payment schedule or at agreed regular intervals. The employer is then required to submit a payment notice and\/or pay less notice<\/a> in response by specified deadlines. If the employer fails to issue either of those notices, it must pay the full amount of the payment application. The principle of \u201cpay now, argue later<\/a>\u201d applies if an employer fails to issue a payment notice and\/or pay less notice.<\/p>\n

In RBG Plastering v Tawe Drylining & Plastering, the validity of an interim payment application issued by a drylining subcontractor to its employer was considered. The employer, RGB, sought a declaration from the court that the interim payment application purportedly issued by its subcontractor, Tawe, was invalid.<\/p>\n

The parties had entered into a subcontract in December 2018, by which an interim payment mechanism was agreed, in line with the requirements of the Construction Act. Pursuant to the contract:<\/p>\n