Unfortunately, in the construction industry, it is really common for payments to be made late … or not at all.
It is important for people working within the industry to know their options when they are being paid late.
The reasons for late payments can vary, from disagreements about the quality of work to an invoice being ignored.
If this has happened, it is vital to understand the options available to you to recover the money that you are owed.
Option one: The formal demand
This is a letter of formal demand for payment. The letter will outline the amount that is owed, the legal basis for the claim and a deadline for the payment to be submitted.
Sometimes, a formal letter that is sent by a solicitor is enough to get the other party to pay up. However, this is not always the case.
This will need to comply with specific court rules as to the content of the letter, called the Pre-Action Protocol for Construction and Engineering Disputes (“the Protocol”).
It will need to set out details of the contract, how the debt arose and provide sufficient information for the paying party to understand the case against them. It will also need to provide the paying party with 14 days to acknowledge receipt and 28 days to formally respond.
A failure to comply with the Protocol could result in you not being able to recover your costs.
Option two: Mediation
Mediation is an excellent option for those who wish to preserve working relationships with their debtor.
This is a voluntary and confidential process where a neutral third party will help all parties involved come to an agreement.
The mediator will guide talks between the parties in an open and honest setting, assessing information from both sides. The mediation is conducted on an entirely without-prejudice basis and is confidential between the parties was enables the parties to be open and honest without fear of anything being used against them.
The mediator is not there to decide who is right or wrong but simply to assist the parties in resolving matters. If terms are agreed, then the parties will usually enter into a formal settlement agreement. However, if no settlement agreement is entered into, then nothing agreed in mediation can be used in court should negotiations fail.
Option three: Construction adjudication
This is one of the quickest legal routes for settling a late payment dispute, with a legally binding decision being made within 28 days.
To begin the adjudication process, a formal notice should be sent to the other party stating the fact that you are planning to refer the unpaid funds to an adjudicator.
You must then appoint an adjudicator. If your contract does not have one named, then you should consult an independent body such as the Royal Institute of Chartered Surveyors.
Within seven days of the initial notice, you must submit a detailed claim with supporting documents. The other side will have the ability to respond to the claim.
Once all submissions have been made, the adjudicator will assess the case right away and will decide within 28 days.
The adjudicator’s decision is legally binding on the parties, but if not complied with, it will need to be enforced via the courts.
It should be noted that the legal costs of adjudication are not recoverable and the parties are jointly and severally liable for the adjudicator’s fees, but these are typically paid by the losing party.
Option four: Statutory Demand
If you have not been paid and you have received no response at all from the paying party, you could consider issuing them with a Statutory Demand in order to force payment.
This provides the paying party whether they are an individual or a company, with 21 days to make payment.
If payment is not made within 21 days, then the paying party is deemed to be insolvent as they cannot pay their debts as and when they fall due.
If they do not respond to the Statutory Demand, then you would be able to consider commencing bankruptcy or winding-up proceedings.
Option five: Court proceedings
An alternative to adjudication would be to file your claim through the UK Government Civil Money Claims platform under set money thresholds.
When drafting the claim form, you will need to provide adequate details as to how the debt arose, what the debt is for and an explanation of relevant information and provide a clear compilation of the principal amount and the statutory interest that has been accrued.
You should also attach to your claim copies of all unpaid invoices, a copy of the contract and pay the required court fees
Once the claim is processed, the other party has 14 days to respond. If no response is made in time, then a default judgement can be requested.
If they do respond, the court will allocate the case to either a small claims track, fast track, intermediate track or multi track depending on the value of the outstanding debt.
How can we help?
We see every day how late payments are crippling the construction industry, which is why we are determined to provide unwavering support for those pursuing a late payment dispute.
Here at Palmers, our team are here to support you, from forming robust contracts to assisting you in court.
For support with late payments, get in touch with our team today.