The key objectives of the Housing Grants, Construction and Regeneration Act 1996 [HGCRA] were to improve cash flow and introduce rapid low-cost dispute resolution via strict rights to timely payment and access to adjudication for all parties.

Time has seen industry proponents adopt adjudication tactics in support of their clients, with two approaches being of particular popularity. The first is “smash and grab” adjudications where a payee to a construction contract may pursue a right to be paid any sum applied for where a payer has failed to issue the required notices to pay a different amount. In parallel, payers have then looked to resist paying such sums by bringing in so called “true value” adjudications to obtain rulings on the fair valuation of works; for sums often significantly less than the amount claimed by the payee.

Recent cases in the UK courts have served to consolidate the landscape and have effectively come out in support of the primary cashflow policy of the HGCRA 1996 by refusing to support such “true value” adjudications where a contractor’s “notified sum” is due; in other words, pay now – argue later.

Our top tips for parties wishing to avoid such situations:

• Make sure your payment terms are HGCRA compliant; use standard forms wherever possible or be prepared to follow the Scheme for Construction Contracts.
• Make sure you know what the “notified sum” is, how it is generated, notified and how it can be legally adjusted (payment and pay less notices).
• Ensure any notices are complete, include all attachments/calculations and leave no doubt about what the notified sum is and when it is due.
• Issue any payment or pay less notices in time; missing the time scales can be fatal to any defence for non-payment.
• Make sure any genuine payment dispute finds its way into the relevant pay less notices, the Courts won’t support informal /vague discussions.
• Don’t risk having an adjudication on the true value if any “notified sum” is out there, unpaid. If in doubt, wait. You snooze, you [don’t] lose!
• Don’t rely on a lack of adjudication on a valid notified sum as a defence to not pay it: the Courts will look retrospectively at what happened in what order to support the primary concern of cashflow in the industry. The payment obligation starts with the application, not the adjudication!
• Know who you’re in bed with! If you have to satisfy them first, would they be able to satisfy you later? “Manifest injustice”…

If you wish to learn more or speak to one of our specialist adjudication advisors, contact Richard Morris at richard.morris@systech-int.com