Sub-contractors, Payments, Applications and Cashflow!

As a subcontractor, it is crucial to understand the proposed payment process within your Subcontract. This can significantly impact your cash flow, profitability, and overall business success.

In this summary, we will explore the importance of the payment process and the implications for you, the subcontractor, along with some essential explanations and helpful tips to help you improve the process.

Different Contracts, Different Terms

Great news for Subcontractors is that all Construction Contracts are governed by the Construction Act (The Act), and if your Construction Contract doesn’t set out payment provisions in line with the Act, the Scheme for Construction Contracts will apply.

Standard forms of Sub-Contract, such as JCT, NEC, and FIDIC, incorporate the requirements of the Act. We also see a lot of bespoke Sub-contracts, which also incorporate The Act.

However, the ‘devil is always in the detail’. Standard forms are usually significantly amended, and each bespoke Sub-contract needs to have the terms read and understood in whole to fully appreciate:

• When you submit your application
• What dates are your works valued up to
• The content required within the applications
• Are there any specific protocols to follow
• When a payment notice is to be issued
• When a payless notice is to be issued
• When your cash physically is supposed to land within the account

Below is an example of how different contracts and dates may serve to confuse/delay your cash:

How to help

• Understand all of the above and specific dates – if you need professional advice – ask!
• Negotiate the above where you can – if you don’t ask, you don’t get. We regularly negotiate an improved position for our clients. Also, remember to ensure that payment for Materials on Site is included within your contract, and where possible, consider payment for materials off-site/upfront.
• Once you’ve taken negotiations as far as you can, be sure to:
  • • Submit on Time
    • Value works up to the correct dates.
    • Present your application clearly and concisely.
    • Ensure your application adds up, is cumulative, and accurately reflects previous applications and/or certifications.
    • Supplementary information:
      • Photos
      • Records
      • Marked up Drawings
      • Variation Breakdowns
      • Instructions
      • Narrative
      • Communication prior to and after submission with those reviewing
      • Take into account previous dialogue and comments.

The Frustrations of When Receiving a Payless and the Next Steps

Despite adopting the above, which should reduce the likelihood of under-certification and disputes, we appreciate that receiving a payless or a payment that falls short of expectations can have a considerable impact.

The following steps to consider when faced with a payless situation are:

• Communicate: Reach out to the main contractor /client to understand the reasons for the reduced payment and seek clarification on any disputes.
• Resolve Discrepancies: Work collaboratively to resolve discrepancies or issues that led to the payless.
• Negotiate: If necessary, negotiate and come to a fair agreement on the outstanding amount.
• Protect Your Rights: Be aware of your legal rights and entitlements as a subcontractor, including your current terms, the Act and entitlement for suspension, late payment and dispute resolution.

Understanding the payment process and adhering to best practices is vital. Efficient payment management ensures a steady cash flow and promotes positive relationships and your Final Account agreements.

By submitting comprehensive applications on time, presenting and supporting your work accurately, and reviewing previous certificates, you significantly improve your chances of being paid what you are owed and on time.

About Gary Davies

Gary is a Quantity Surveyor/Commercial Manager with over 20 years of experience in various sectors including commercial, leisure, fast track, residential, education, retail, blue light and extra care. He has extensive knowledge of JCT and NEC contracts.