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Oct 2011

Construction disputes - difficulty being paid

In today’s challenging economic climate many companies are finding it increasingly difficult to get paid for their work. Amongst other things, when looking at a construction project one must consider the payment route.

What agreement is in place for you to be paid?

Construction is a complex area where specialist advice is recommended at the tender and contract negotiation stage to ensure the right type of contract is entered into to protect your right to payment.

What is your right to payment?

Your right to payment will depend upon the type of contract you enter into and the wording of the same. In essence (as long as the contract terms are legal) parties can make whatever arrangements they want when negotiating contracts. Of course, depending upon the size of the particular works, you may be advised to adopt a standard form for example an NEC or JCT contract.
Typically there are three main heads of contracts that deal with payment:

  • Lump sum contracts, (a contract for a fixed sum for works undertaken);
  • An express contract (other than for a lump sum) which usually includes measurements and value contracts, cost plus percentage or cash discount contracts and
  • A claim for a reasonable sum frequently called quantum meruit – “what the job is worth”.

Often you may be asked to carry out extra works that in your opinion fall outside of the works originally agreed. For your business to maintain fiscal sustainability it is unlikely that you would undertake the extra work without making an additional charge. However, you may not be paid for the extra works unless you can prove:

  • that each item of extra work fell outside of those works initially agreed;
  • that there was a promise to receive payment for the extra works;
  • that authorisation was given by a suitable agent and
  • that you have a right to receive payment.

If you cannot meet these requirements there is a real risk that you will not be paid. Unfortunately the mere fact that you have undertaken the extra works does not in itself give rise to you being paid. There are various aspects to consider when establishing your rights to payment. These include (amongst other things) carefully looking at the original contract, any written or verbal orders and the conduct of the parties throughout the duration of the contract.

If you find yourself in a construction related dispute it can quickly become very difficult and complicated. You are therefore encouraged to instruct a specialist lawyer at the outset of any dispute to obtain legal advice in relation to your position and to try and resolve your dispute as amicably and cost effectively as possible.

For more information contact Maxine Dacres

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