Test the payment clauses on a real month before your first application
Payment terms that read well can still fail when you put dates to them, and the first late payment is a bad time to find out. Work every date through for the first month of the job, and settle any conflicts with your main contractor before the money is due.
Updated: . By Jack Butler-Kettle, Construction Claims Consultant.
Why it matters
Payment terms are often written in pieces: the clause, a schedule of dates, the particulars, and amendments that change one without the others. The result can be a due date before the application, or a final date for payment worked out from a deleted clause. It can also be a notice period nobody can meet. These faults surface in the first month, when a payment is late and nobody can say which date applied. Working the dates through in advance finds them while there is still time to agree the answer.
How to do it
- Collect every document that states a payment term: the clause, any schedule of dates, the particulars and the amendments.
- Take the first application date on your programme. Work out from the documents the due date, the payment notice date, the pay less notice date and the final date for payment.
- Note each conflict, where the documents give different answers or none at all.
- Write to your main contractor proposing the dates both sides will work to, and keep the reply.
- Put the agreed dates for every month of the programme in the diary.
Example
Illustrative example. The scenario and figures are invented.
The facts
A scaffolding subcontractor signs a £240,000 subcontract. The payment clause makes each payment due 14 days after the application. The schedule of dates says applications go in on the last Friday of the month. The particulars say payment is made 30 days from the end of the month of application.
What happens
- The subcontractor takes its first application, on Friday 27 March. The clause gives a due date of 10 April. The particulars suggest payment by 30 April but give no due date. No document fixes a final date for payment.
- It notes the conflict and sends the main contractor a proposal. Each payment falls due 14 days after the application, with a final date for payment 21 days after that.
- The main contractor agrees in writing, and the subcontractor puts the dates for all 10 months in the diary.
The outcome
The first payment arrives on 29 April, before the agreed final date of 1 May. The notice deadlines are known for every month of the job, and nobody has to argue which document fixes the dates.
To have this done for you, see our Post-Signing Contract Review service.