The government set rules and regulations governing payment for construction works back in 1996, coming into force on 1 May 1998. Awareness of this construction payments scheme is low, and even lower in relation to the amendments to the scheme that came into force on 1 October 2011.
Often, lack of knowledge of and compliance with the construction payments scheme is not an issue as invoices are paid in full. However, many contractors are left out of pocket after they are not paid properly, or at all, or retention monies are not settled.
Conversely, where a subcontractor challenges a failure to pay properly for substandard work, a failure to comply with the construction payments scheme can give them an easy way to recover money they haven’t properly earned.
Knowing what the construction payments scheme provides for can improve your cash flow and help you ensure that your subcontractors carry out work to the required standard, or remedy defects promptly.
The scheme requires contracts for construction works to contain certain provisions. If the contract does not, the default position for invoicing and payment set out by the scheme applies. Further, the legislation prohibits certain types of clauses which were, and remain, common in construction contracts.