Clearview National April 2017 - Issue 185 | Page 32

INDUSTRYNEWS
Construction contracts and non-
payment suspend or terminate?
» » LATE, PARTIAL AND NON-PAYMENT
continues to cause serious problems within
the construction industry. The Euler Hermes
Quarterly Overdue Payments Report,
published in March 2016, reported that in
2015 the construction industry suffered a 26%
year-on-year rise in the number of payments
which were overdue. Johnathan Hyndman,
Partner at solicitors Rosling King, looks at the
issues to be considered before an unpaid party
suspends performance or seeks to terminate
following non-payment.
SUSPENSION
A statutory right to suspend all or part
of an unpaid party’s obligations under a
construction contract will arise where payment
is late, partially paid or missed completely,
without the correct notice procedures being
adhered to. In order to suspend performance,
the unpaid party must first serve the defaulting
payer with written notice of its intention
to suspend. This notice must confirm the
intention to suspend performance and the
grounds for doing so and should also provide
at least seven days’ notice before suspension
takes place.
Once this procedure has been complied
with the unpaid party can treat performance
under the construction contract as suspended
and will be released from its obligations under
the contract until the amount due is paid in
full. In addition, the paying party will be liable
for the reasonable costs of the unpaid party
demobilising and remobilising. The unpaid
party will also be entitled to an extension of
time under its construction contract equal to
the period of suspension.
It is fundamental that the unpaid party
closely examines the terms of its construction
contract before suspending performance to
ensure that in exercising its right to suspend,
it does not itself repudiate the construction
contract. The unpaid party should review
any express terms within the contract as to
suspension and closely examine the payment
provisions within the contract to ensure that
the final date for payment has in fact passed.
Correspondence received from the paying
party must also be reviewed to establish
whether an effective payment less notice
32 » A PR 2017 » CL EARVI E W- UK . C O M
has been served. The suspending party must
also adhere to the notice provisions within
the construction contract and pay particular
attention as to whether weekends and/or bank
holidays are included within the reckoning of
days both in relation to determining whether
the final date for payment has passed and the
notice period required before performance can
be suspended.
TERMINATION
The vast majority of construction contracts
will contain express provisions allowing the
parties to terminate following the occurrence
of specific events. These invariably include
non-payment and/or where the unpaid party
has validly suspended performance following
non-payment for a continuous specified
period.
The issues to be considered by the unpaid
party before terminating a construction
contract are similar to those which must
be considered before any right to suspend
performance is exercised – the contractual
termination mechanics and notice provisions
must be examined and strictly observed and
the final date for payment must have passed
without a valid pay less notice having been
served by the paying party.
Most construction contracts provide for a
two-stage termination notice procedure with
the non-paying party servicing an initial notice
specifying the default and, where the default
specified in the initial notice is not remedied
within the contractual timeframe, a second
notice effecting termination.
The contractual provisions as to the effects
of termination should also be considered
before an unpaid party seeks to terminate its
employment under a construction contract.
The terms of the contract may attempt to
exclude compensation for loss of profit and it
may therefore be more attractive to the unpaid
party to treat the contra