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How does NEC4 Option Y(UK)2 work?

Option Y(UK)2 makes payment due 7 days after each assessment date, with the final date for payment 14 days later unless the Contract Data differs.

Updated: . By Jack Butler-Kettle, Construction Claims Consultant.

The answer

It is the NEC4 option that makes the contract comply with the Housing Grants, Construction and Regeneration Act 1996 as amended. It works by fitting the Act's notices onto NEC's own payment clauses, 50 and 51. On an NEC subcontract, your main contractor is the one certifying and paying you, and your subcontract may set different periods. Clause Y2.2 sets the dates. Payment becomes due 7 days after the assessment date. The final date for payment is 14 days after that, or a different period if the Contract Data states one. The certificate under clause 51.1 is the Payment Notice section 110A requires. It must state the amount due and how it was worked out. Because it is due within 1 week of the assessment date, it should arrive by the due date. If no certificate is given, the application for payment stands as the notice under section 110B. Clause Y2.3 covers paying less. A party that plans to pay less than the notified sum must give notice not later than 7 days before the final date. That notice states the amount it thinks is due and how it was worked out. Without it, section 111 requires the notified sum to be paid. Clause Y2.4 makes a lawful suspension under section 112 a compensation event. So the cost of suspending is recovered through clauses 61 to 66, not as damages. Five things go wrong. The certificate gives no basis, so it is a weak Payment Notice. The Pay Less Notice comes from the Project Manager instead of the paying party. The final date is counted from the certificate, not the due date. Contract Data or Z clause periods replace the 14 days and never reach the diary. And someone suspends without the notice the Act requires.

Example

Illustrative example. The scenario and figures are invented.

The facts

An unamended NEC4 ECC with Option Y(UK)2 has an assessment date on day 0, so the due date is day 7. The Project Manager certifies £72,000 on day 5, and the payment dates follow from that.

What happens

  1. The certificate on day 5 is the Payment Notice.
  2. The final date for payment is day 21, and any notice of intention to pay less must be given by day 14.
  3. The Client pays £60,000 on day 21 with no Pay Less Notice, so the £12,000 shortfall is unpaid notified sum.

The cycle in figures

ItemAmount
Certified on day 5£72,000
Paid on day 21£60,000
Unpaid notified sum£12,000

The outcome

The £12,000 shortfall is unpaid notified sum. If the Contract Data gives 28 days to the final date for payment, the same sequence runs to day 35, with the Pay Less Notice by day 28.

Late Payment Prevention puts the due date, the Pay Less Notice window and the final date for every cycle on one diary.

Sources

  1. Housing Grants, Construction and Regeneration Act 1996, Part II (Construction contracts), as amended by the Local Democracy, Economic Development and Construction Act 2009, Part 8. legislation.gov.uk.
  2. Housing Grants, Construction and Regeneration Act 1996, s 110A (Payment notices: contractual requirements). legislation.gov.uk.
  3. Housing Grants, Construction and Regeneration Act 1996, s 110B (Payment notices: payee’s notice in default of payer’s notice). legislation.gov.uk.
  4. Housing Grants, Construction and Regeneration Act 1996, s 111 (Requirement to pay notified sum). legislation.gov.uk.
  5. Housing Grants, Construction and Regeneration Act 1996, s 112 (Right to suspend performance for non-payment). legislation.gov.uk.