Barrister Professor Rudi Klein explains the recently revised statutory guidance on the 30-day payment rule applicable to public sector works under the Public Contracts Regulations 2015.
On 26 February 2015, Regulation 113 of the Public Contracts Regulations 2015 came into force, which applies to public sector contracts entered into by UK government departments, agencies and non-departmental public bodies (i.e. government quangos), and English public bodies (e.g. local authorities). These are collectively referred to in the Regulations as ‘contracting authorities’. (A contracting authority which is a maintained school (funded by a local authority) or an Academy (funded by government) is exempted from Regulation 113.)
Regulation 113, which was revised on 30 September last year, imposes a duty on contracting authorities to ensure that contracts with their contractors contain a requirement to make payments within 30 days. They must also ensure that clauses to the same effect are contained in sub-contracts and sub-sub-contracts.
Where such requirement is absent from the contract (or sub-contract) there is, in any event, a term implied by Regulation 113(6) that payment must be made within 30 days. This means that even if the payment periods stated in your contract are more than 30 days, you still have a statutory right to be paid within 30 days. Where payments are made later than the 30 days, you have a right to levy statutory interest, under the Late Payments of Commercial Debts (Interest) Act 1998 and the Late Payment of Commercial Debts Regulations 2002 and 2013.
Where you have concerns about the solvency of the payment party, you may wish to suspend performance of any or all of your contractual obligations on the expiry of the 30 days (rather than waiting for payment on the expiry of the contractual payment period).
When does the 30 days start?
When Regulation 113 came into force it was unclear as to when, in construction contracts, the 30 days started from. The answer under Regulation 113 is the point at which invoices are verified as being valid and undisputed. But this is not easily aligned with the statutory payment notice procedure in construction contracts. Therefore, the revised statutory guidance issued under Regulation 113 advises that the start dates for the 30 days under construction contracts are as follows:
- Where the paying party is required to issue the payment notice (i.e. within five days of the payment due date) the 30 days starts after the notice is issued.
- Where the paying party is required to issue the payment notice but has failed to do so, the 30 days starts from the date when the notice should have been issued, or the date when you issued a default notice (whichever is later). If your contract requires or permits you to issue a payment application, the application takes effect as the default notice immediately on the expiry of the five days after the due payment date.
- Where you have issued the payment notice, the 30 days starts after the date on which the notice was issued.
What to do in the event of non-compliance
In the event that a public body or a contractor (above you in the supply chain) is applying a term in excess of 30 days, a complaint can be made to the government’s complaint service, called the Mystery Shopper Scheme. In order to preserve your anonymity, it is better if the complaint was made through FIS, but you will need to produce the terms in your contract/sub-contract that allow for payments to be made in excess of 30 days. This Regulation is potentially far-reaching. It attempts to standardise 30-day payment terms up and down the supply chain on all public works contracts. But you may have to police the process to ensure that 30-day terms are being applied. Public bodies must publicise on their websites the extent of their compliance with the Regulation.