Back to Basics #29 - Notices Relating to Payment under the NEC Contracts
For construction projects let under NEC Forms of Contract in the UK, secondary option Clause Y(UK)2 should be selected. This is to ensure the Contract complies with the Construction Act, which requires all Construction Contracts to include a provision either the payer or the payee to issue a Payment Notice (specifying the amount due at the payment due date). The basis on which this amount is calculated, and the right to issue a Pay Less Notice if the payer intends to pay less than the sum set out in the Payment Notice should also be included.
- The NEC Engineering and Construction Contract operates on a ‘payer-led’ basis, where it is the payer that is required to issue a Payment Certificate. This constitutes the ‘payment notice’ for the purposes of the Act. This must be issued within 7 days of the assessment date (Clause 51.1).
- If the payer wishes to pay less than the sum set out in a Payment Certificate, then the payer should notify the payee of the amount it considers to be due and the basis on which that amount is calculated. This must be issued no later than 7 days before the final date for payment (Clause Y2.3).
Failure to follow the procedures and timescales can have cost implications for the parties. For example, failure to pay a ‘notified sum’ can result in a party exercising its right under the Act to suspend the Works (Clause Y2.4), which is a Compensation Event that could result in additional time and money being spent.
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