Late Payment: What Can We Do When We Don’t Get Paid?
What can we do if we don’t get paid or suffer from late payment? We get this question a lot at claims class, along with similar questions about late certification.
In some regions, this is less of a problem because legislation is quite strict on payment terms. However, elsewhere, it is common for the paying party to hang onto money for as long as possible.
Most forms of construction contract will include some sort of remedy for non-or late payment. You will need to check what these are on your projects. However, as an example, let’s have a look at the FIDIC Red Book, 1999 Edition:
FIDIC On Late Payment and Late Certification…
Sub-Clause 14.8 (Delayed Payment) states that:
‘If the Contractor does not receive payment in accordance with Sub-Clause 14.7 [Payment], the Contractor shall be entitled to receive financing charges compounded monthly on the amount unpaid during the period of delay. This period shall be deemed to commence on the date for payment specified in Sub-Clause 14.7 [Payment], irrespective (in the case of its sub-paragraph (b)) of the date on which any Interim Payment Certificate is issued.
Unless otherwise stated in the Particular Conditions, these financing charges shall be calculated at the annual rate of three percentage points above the discount rate of the central bank in the country of the currency of payment, and shall be paid in such currency.
The Contractor shall be entitled to this payment without formal notice or certification, and without prejudice to any other right or remedy.’
Issue a Notice
This provision is quite clear. As soon as you encounter late payment, you should ensure you issue… (sign up to receive the full article right away)
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Pursuant to clause 60.10 of FIDIC Red Book 4th edition, in case of failure of The employer to release the certified payment within stipulated period ” The Employer shall pay t the Contractor interest at the rate stated in the appendix…….”
is there any requirement of submission of notice under clause 53.1 in this regard, if no then Why?
In clause 53.1 , notice is required for any additional payment, whereas no notice is submitted under clause 70 (price adjustment) why
This is not a situation covered by FIDIC and woudl need to be agreed by negotiation.
Hi Mr. Andy,
As per Sub Clause 14.8 (FIDIC 99) Delayed Payment, Contractor is entitled for interest on delayed payment. Of note contractor is claiming x% from Employer in their claims for financing cost. There may be occasions whereby the Contractor has requested the employer to exceptionally advance him a part payment with respect to interim payment certificate. It is also noteworthy that the Contractor had submitted a bank certificate to demonstrate that he has a financial standing of X amount for the proper execution of the works at time of bidding. Based on the principle fairness, it would not be fair to the employer if the contractor is entitled to interest on delayed payment and employer do not get a dime when he exceptionally advances money to ease contractor’s cash flow.
Please advise on interest lost by employer for effecting payment well in advance of due date. Can it be offset against interest on delayed payment? Thanking you in advance.
Hi,
Please advise on interest lost by employer for effecting payment well in advance of due date. Can it be offset against interest on delayed payment?
Thank You , it really helps. Can’t wait to join one of your classes
Hi Mesfin,
Pleased that you found the blog useful. To answer your questions:
Do the Contractor obliged to provide by how much percentage he is reducing his progress?
NO AND THIS WOULD BE DIFFICULT TO DO UNTIL YOU CAN COMPARE ACTUAL AGAINST PLANNED PROGRESS DURING THE PERIOD OF REDUCED RATE OF WORK.
or the Engineer has to determine from the Program versus Progress report which is difficult as the Contractor might be delayed do you to other factors including poor management.
IT WOULD BE MORE USUAL FOR THE CONTRACTOR TO SUBMIT A CLAIM WHICH INCLUDES A COMPARISON OF ACTUAL AGAINST PLANNED PROGRESS DURING THE PERIOD OF REDUCED PROGRESS TO DEMONSTRATE THE DELAY CAUSED BY THE REDUCED RATE OF WORK.
Does he has to stop some equipment or demobilize to show he is reducing the rate?
THIS IS THE CONTRACTORS PREROGATIVE. THE DEMOBILISATION OF PLANT AND EQUIPMENT WOULD CERTAINLY HELP TO DRAW THE EMPLOYER’S ATTENTION TO THE MATTER AND WOULD BE A GOOD WAY TO SUBSTANTIATE LATER CLAIMS.
I HOPE THIS HELPS.
Very Helpful indeed,
One question
Do the Contractor obliged to provide by how much percentage he is reducing his progress? or the Engineer has to determine from the Program versus Progress report which is difficult as the Contractor might be delayed do you to other factors including poor management. Does he has to stop some equipment or demobilize to show he is reducing the rate?
Very nice and helpful.
I am currently facing problem regarding EoT claim due to delayed payment by the Contractor. The client has paid interest on delay @4% per anum as per FIDIC contract. The contractor is now looking for EOT due to delayed payment during the period of constructing the project and there is no such guidance available in Contract. neither the Contractor give such type of notice.Anyone could help me to sort out the same.Is there any document available globally to cater such problem? Thanks in advance
Do we get paid for idle plant after suspending the works?
a good site
Another useful and informative article – keep them coming!
Hi Simon – good to hear from you and thanks for your comment. Glad you’re enjoying the blog! Regards, Nina.
Excellent article Andrew,
It also begs the question as to why contractors keep on working when payments are late.
Firstly, they try to uphold a ‘relationship’ with the client and not take action that might invite reciprocal harsh reactions to non-compliance issues on their part later in the project, if it proceeds.
Secondly, contractors are seldom entirely on schedule in executing the works and try to use the employer’s delay as an opportunity to recover some of their own delays. Such action obviously negates their own entitlement and may prove to be wasted effort as suggested in your penultimate paragraph.
Even where contractors have suffered losses and delays and submitted claims, their record keeping often fails them. Establishing their case for partial delay requires comparison to both scheduled and ‘actual’ production.
I agree that a total shutdown is probably the best way to focus the employer’s mind, and simplifies the contractor’s claim to one of demobilization, standing and remobilization costs and the resulting EOT.
Hi Andy, thanks for this..I have been on contract where Sub-Clause 4.8 (Delayed Payment), or similar provisions has erroneously been deleted from the condition of contract (by the particulars), which put the contractor in a different situation of having finally to resort to courts (as per the contract); since non-payment/ unduly delayed payment would, by inference be a breach of contract. Your recommendation in the second last paragraph (keeping resources away from Site) may be the only short-term action to follow. Note: such conditions of contract normally comes from fairly high employers.
Thanks you. Good one.
I would appreciate if you can publish an article related how to distinguish delay and disruption claims in a remeasured contract.
Hi Rajendra – I’ve passed your blog request onto Andy and we’ll see what we can do! Best Regards, Nina.
Thank you so much, for sending your gratitude for my comment.
Thank you for sending this article.
Hi Basil – you’re welcome, glad to see we’ve got some readers out there! Best wishes, Nina.