Many construction contracts attempt to protect paying parties by linking payment dates to administrative steps: issue the invoice late, provide supporting information late, and payment can be pushed back.
The recent TCC decision in Deerns UK Ltd v VDC LHR11 Ltd is a reminder that such provisions can have unintended consequences. The court found that a mechanism which allowed the final date for payment to move depending on when an application was submitted did not satisfy the Construction Act's requirement for certainty in the payment timetable. The result was that the Scheme for Construction Contracts stepped in, changing the payment timetable from 30 days to 17 days and leaving the employer's pay less notices out of time.
Although the clause was clearly designed to give the employer greater protection, in practice, it achieved the opposite and left the employer exposed in a smash and grab adjudication to pay out over £900,000. The court was not interested in the argument that both parties had previously operated on 30 day terms, saying that commercial agreements could not displace the requirements of the Act.
A useful reminder to check that payment mechanisms work from a cashflow perspective, but also do not fall foul of the statutory requirements.
