Negotiating a building contract—payment issues

The following Construction practice note provides comprehensive and up to date legal information covering:

  • Negotiating a building contract—payment issues
  • 1. The draft building contract contains an extended payment cycle (lengthy periods between valuation dates, due dates and final dates for payment)
  • Employer’s position
  • Contractor’s position
  • Compromise/negotiated position
  • 2. The draft building contract provides for a short ‘prescribed period’ for giving a pay less notice before the final date for payment
  • Employer’s position
  • Contractor’s position
  • Compromise/negotiated position
  • 3. The draft building contract contains a high retention percentage
  • More...

Negotiating a building contract—payment issues

The payment provisions in a building contract will usually provide for the contractor to make applications (although applications are not always mandatory) either at monthly intervals or the end of certain stages (eg where the works reach specified milestones), and may set out requirements as to what any applications must contain and will provide for conclusion of the final account. The contract should also set out the timings for various notices to be served in accordance with the Housing Grants, Construction and Regeneration Act 1996 (HGCRA 1996). The contract is also likely to contain provisions relating to loss and expense payments, interest on late payments and the withholding of retention, and may contain other payment-related provisions. Many of these payment provisions will not be contentious and will reflect terms commonly seen in the market. There are, however, several issues relating to payment which are often the subject of negotiation between the parties. This Practice Note is a negotiation guide, looking at the most common issues that typically arise in relation to payment when drafting and negotiating building contracts. What the parties ultimately agree will depend on the particular circumstances of the project and the strength of the parties’ negotiation position.

This Practice Note looks at the payment provisions which are commonly proposed by the employer in the draft building contract, and

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