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Contract law

Fair payment is a basic human right

A new mandatory fair payment charter, the wider adoption of project bank accounts and the forthcoming amendments to contracts legislation in the Construction Act represent a triple boost for our efforts to create a fairer and more profitable working environment for specialist subcontractors.

Late payment
The public sector, on which we have come to depend even more in the current economic climate, has a lamentable record on payment.

A team from the HVCA recently met with the Prompt Payment Team at the Department for Business Innovation and Skills (BIS), at which it was pointed out that, not only were public sector clients failing to adhere to the 10-day payment period set down by the former business secretary Lord Mandelson, but that they were also
failing to meet the payment periods laid down in the Office of Government Commerce’s Fair Payment Charter.

Late payment continues to be the single most debilitating issue faced by our industry. It is beyond all reason that contractors are forced to wait months for money that is rightfully theirs.

It is clear that the withholding of payment is being used as a tactic during these financially pressurised times and the impact on specialist subcontractors in particular can be catastrophic as their cash fl ow is strangled. BIS accepted that payment periods across the construction sector are unacceptably lengthy. It has backed our campaign to make the Fair Payment Charter mandatory, and this will allow for the measuring and monitoring of public sector bodies’ record on payment.

Project bank accounts
This now gives the HVCA an opportunity to highlight instances of poor payment practice and bring them to the Government’s attention. In time, this should lead to fairer treatment for all contractors. At the same time, it is heartening to note that project bank accounts, which loosen main contractors’ vice-like grip on project funds, are being adopted more widely.The highest profile instance is the Crossrail project, which sets an example for the whole sector to follow.

Again the HVCA is urging the Government to adopt this example of best practice across all public sector procurement and make the use of PBAs a prerequisite for the release of project funding.

We have also been heavily involved in the review of the contracts legislation contained in Part II of the Housing Grants, Construction and Regeneration Act 1996 (known as ‘the Construction Act’ for short).

This led to Part VIII of the Local Democracy, Economic Development and Construction Bill, which includes measures designed to improve payment security and adjudication procedures.

This Bill received the Royal Assent in November 2009, but the changes contained in the new Act will not come into force until next April.

Fair play
All of these changes represent a powerful combination designed to strengthen the mechanisms available to contractors for recovering their money. If clients refuse to play fair, then contractors must stand up for their rights and use the legal tools at their disposal.

Subcontractors are often reluctant to rock the boat with clients, but gaining fair payment for work undertaken and completed in good faith is a basic human right. Over the next few months we will see a strengthening of the legal framework supporting that right.

Roderick Pettigrew is deputy chief executive and head of commercial and legal at the HVCA