We use cookies to make your experience of our website better. Some of these are set by third party Google Analytics to help us analyse website traffic. To comply with privacy regulations, we require your consent to set these cookies. If you continue to use the site without selecting an option we will assume you are happy for us to use cookies.

Construction Contracts - 3 Quick Facts On The Late Payment Of Commercial Debts (Interest) Act 1998

Construction Contracts - 3 Quick Facts On The Late Payment Of Commercial Debts (Interest) Act 1998

As a construction lawyer, my main interest is on how the Late Payment of Commercial Debts (Interest) Act 1998 (the “1998 Act”) deals with construction contracts. Many standard form contracts, such as NEC3, JCT and its Scottish equivalent SBCC, contain adequate interest provisions but there are also many bespoke and hybrid contracts out there that don’t. Briefly put, the 1998 Act allows an aggrieved party to claim statutory interest, at a very healthy rate of 8.25% (8% above the Bank of England base rate of 0.25%), if his or her construction contract does not contain a “substantial remedy” for late payment.

Here are three quick facts (often overlooked) about the 1998 Act that are worth bearing mind when reviewing a draft construction contract or pursuing a claim for money under one:

  1. The 1998 Act is concerned with late payment on a “qualifying debt”, which occurs when there is a failure to pay the whole or any part of the “contract price”. Therefore, liquidated damages and loss and expense, as they are not part of the original contract price but payments by way of compensation, will not be covered.
  2. The 1998 Act allows an aggrieved party to claim a fixed compensation payment, on a sliding scale, in addition to the 8.25% interest payments, to offset the costs of recovery. While this compensation payment is low (the maximum is £100 for a debt of £10,000 or more), crucially section 5A(2)(A) allows you to claim “reasonable costs” of recovery over and above this fixed compensation payment, if say, the £100 doesn’t cover your costs.

    Imagine you have raised an adjudication, and the sum you are claiming is made up of a payment of the contract price and interest under the 1998 Act – then imagine how satisfying it would be to get some or all of your “reasonable costs” of recovery back (lawyer’s, claims consultant’s and expert’s fees) in a winning adjudicator’s decision, by playing the section 5A(2)(A) card.
  3. The 1998 Act allows statutory interest to be reduced or even denied, in the “interests of justice”, if the aggrieved party’s conduct or ‘bad behaviour’ merits it. In the context of a construction contract, could this bad behaviour be established by an inexcusable delay in pursuing certified sums? The patchy case law on this point suggests it might – so to be sure of getting your full 8.25% don’t sit on legitimate claims for too long!

James Forbes
Partner

Burness admin