Debt Collection for the Construction Industry
Construction projects can be complex and susceptible to cost increases and delays. Large sums of money are at stake more often than not, putting contractors under increasing cash flow pressure, making prompt payment a crucial factor.
In this article, we touch on the complexities of payment in the construction industry and look at one of the methods to quickly resolve payment issues.
Payment Practice in the Construction Industry
There are several ways a company can improve payment practices in the construction industry; it is best to start at the very beginning. First, the contractual relationship between a contractor and a client is vital. Standard forms like JCT and NEC contracts set out detailed payment mechanisms; however, many agreements involve bespoke terms, or in some cases, no formal terms are in place.
The type of contract will determine when a contractor is entitled to payment. While the parties involved are free to agree on their payment terms, it is essential to note that, where the terms are deficient or no terms agreed that specific legislation in the Housing Grants, Construction and Regeneration Act 1996 (as amended) and secondary legislation, the Scheme for Construction Contracts(as amended) serve to incorporate terms where the parties payment mechanism is deficient.
Common Dispute Issues
Contractors’ disputes often manifest themselves in non-payment of sums considered due but often involve issues of:
- payment for additional works or variations
- compensation for other losses caused by delays or disruption
- release of retention monies
Construction contracts carry a statutory right to refer disputes to Adjudication. The law is slightly different for parties where one party is a homeowner; however, contractual adjudication may be agreed upon.
An adjudication is a form of dispute resolution that allows parties to get a binding decision without lengthy and expensive court proceedings.
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First Capitol Collections - Our Steps for Construction Debt Recovery
- Gather the evidence that proves the events in question
- Evaluate and assess the entitlement to payment
- Prepare the claim
- Advise you on the best course of action for recovery
- Act as your representative
- Obtain a decision
- Enforcing the right to the claim
The Adjudication Process for Dispute Resolution
Notice of Adjudication
- The nature and a brief description of the dispute and parties involved
- details of when and where the dispute has arisen
- The nature of redress sought, and
- The names and addresses of the parties.
Appointing an Adjudicator
An Adjudicator has to be appointed within seven days of the Notice of Adjudication being served. Depending on what the contract says, this may be done by any Adjudicator Nominating Body (ANB). It usually costs between £250.00 – £425.00 for the nominating body to appoint an Adjudicator.
The appointed Adjudicator will then confirm their appointment with both parties involved in the dispute.
The Referral
The Adjudicator will issue directions and a timetable allowing the Respondent to give a Response to the Referral Notice.
The Adjudicator will then issue directions and a timetable. They will allow the Respondent to give a Response to the Referral Notice. Depending on the contractual agreement, the Respondent usually has between 7 to 14 days to respond to the Referral Notice.
The Adjudicator may allow the Referring Party to Reply to the Respondent’s Response.
The Adjudicator may ask for a meeting, visit a site, or consider sufficient information to issue a decision.
The Decision
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Construction debt recovery doesn’t have to be a long, arduous process. However, taking time, in the beginning, to get the proper contract in place with reasonable terms and conditions and an adequate payment mechanism and dispute resolution process can assist in resolving potential disputes and speeding up payments.
Adjudication is a statutory and quick process to receiving a binding decision on your dispute if things go awry.
While Adjudication is not the final determination of the parties’ rights in most circumstances, the Adjudicator’s decision is accepted as a final step.
