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Fri July 19 2024

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Court ruling makes final payment dates optional, says defeated contractor

17 Nov 23 The owner of a building services contractor is seeking support for his legal battle.

Darren Tancred, owner and managing director of East Grinstead-based Providence Building Services Limited, fears that his legal defeat against a housing association client will have a negative impact on the payment mechanism for contractors.

This week the Technology & Construction Court passed judgment in the case Providence Building Services Limited v Hexagon Housing Association Limited and found in favour of Hexagon.

In December 2022 Providence fell into conflict with Hexagon over payment of invoices. The dispute escalated and by May 2023 Providence had walked off the job. Hexagon disputed Providence’s right to quit.

The TCC ruled that, under the terms of the amended JCT Design and Build Contract 2016, it was necessary that Providence had accrued the right to terminate its employment. The judge, Adrian Williamson, ruled in favour of Hexagon and rejected Providence’s application for permission to appeal.

Throughout the contract Providence received 20 payments beyond the final date of payment, it said. Despite receiving five suspension notices and specified default notices, Hexagon continued to pay late, which in turn impacted the supply chain, says Providence managing director Darren Tancred.

“The facts remain that the employer, despite various complaints, repeated suspension notices and specified default notices continued to breach their fundamental obligations to pay Providence on time,” he said.

According to Hexagon’s legal representatives, the  case is “a salient reminder to trigger happy contractors that jumping the gun during the termination process will have significant consequences”.

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According to Darren Tancred, the implications of this judgment are so severe for the construction supply chain that he is seeking industry support to have the refusal of his appeal application overturned

“This will have a trickledown effect of promoting payment beyond the final date of payment,” he said. “This subsequently means that employers to their contractors, and main contractor to their subcontractors, are now able to pay beyond the final date of payment, making the final date of payment optional.

“Upon receipt of a specified default notice pay, employers can now pay its contractor on the final day of the curing period. As exampled in the Providence case, this poor payment practice can continue month after month after month, not only extending the credit terms to employer and providing further cash flow burdens on contractors in an industry already in decline and with record insolvencies.”

He continued: “Both employer and contractor are aware of the consequences of their failures to comply with their contractual obligations, this decision now dilutes the employer’s requirement to perform its most fundamental obligation to the contractor and its supply chain, which is to pay by the final date for payment.

“Finally, whilst the Construction Act does not provide any termination provisions, the act does provide that payment should be made down the supply chain promptly and this judgement goes some way to undoing this.”

He concluded: “Ultimately this decision will be felt hardest by those at the bottom of industry, being the contractors/employees working onsite on a day-to-day basis as poor payment provisions unfortunately has a trickledown effect and will lead to a negative impact on cashflow and the contractor(s) ability to trade, and perhaps this decision alone will have its own commercial benefit for unscrupulous employers.”

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