Payment terms in temporary works contracts

Barrister Rudi Klein advises readers on the legal requirements applying to payment terms in temporary works contracts.

The example schedule above should be used for each of your contracts. It incorporates legal requirements relating to the payment process and alerts you to the dates when the various notices are to be sent or are to be expected.

Applications

It is vital that you familiarise yourself with your contract provisions governing the submission of applications. These usually indicate:

  • the form of the application (i.e. some particular format may be required)
  • the time for submission
  • the content of the application
  • how the application is to be submitted (i.e. paper and/or electronically)
  • to whom and/or to what address the application is to be sent

It must be headed ‘Application for Payment’.

Points to remember

  • All your applications must show a build-up of the amount you are claiming, that is, the basis of your calculation
  • Keep strictly to the contractual requirements governing the submission of your applications

Something to be aware of

If your application does not conform to the requirements of the contract and show the basis of your calculation, it will be invalid. If the application is invalid, there is another consequence (other than the risk of not being paid). In the event that your payer fails to issue you with any payment notices, your application then becomes the amount that must be paid. If it is invalid, this will not, of course, happen.

Payment dates: ‘due’ and ‘final’

By law, your contract must indicate the due dates on which all your payments become due and the final dates by which your due payments must be discharged. If you cannot ascertain the due and final dates, you should get back to your paying party to seek clarification. Having clarity is essential since because, as we shall see, issuing payment notices are linked to the due and final dates for payment.

If you do not have clarity in this context, the first due date will fall on the expiry of 35 days after first commencing your works; and, thereafter, the next 35 days, and so on. The final date for payment will fall on 17 days following the due date.

Payment notices

The law requires that no later than five days after the due payment dates, your payer must issue you with a payment notice. This must state the amount the payer proposes to pay and the basis of the calculation. In fact, your contract should state who is to issue this notice – you or the payer. If it doesn’t state this, the onus is on the payer to issue the notice.

The payer can also issue a pay less notice. To be valid, this must be issued before the final date for payment and, again, must show how the revised amount has been calculated. In practice, pay less notices are issued a day before the final date for payment. This can make cashflow difficult to manage if, for example, you have 60-day payment terms and, then, out of the blue, you receive a pay less notice on the 59th day.

Reminder!

If you do not receive any payment notices from your payer, a valid payment application from you will become the amount that has to be paid.