Back to Basics #30 - Payment Timetable Under the Unamended NEC Engineering and Construction Contract
This mailshot focusses on the payment provisions in the unamended NEC contracts. Contracts for ‘construction operations’ in the UK should include Option Y(UK)2.
In NEC contracts the assessment date is arrived at based on the assessment interval stated in the Contract Data and will often be specified by the Employer as being monthly.
The Project Manager is to certify the amount due within one week (7 days) on the assessment date (in accordance with Clause 51.1). The date the payment becomes due is also one week (7 days) from the assessment date (Y2.2).
The NEC3 Engineering and Construct Contract operates on a "payer-led" basis where it is the payer that is required to issue a payment certificate. The PM would issue the payment certificate to the Contractor.
In NEC4 there is an onus on the Contractor to issue an application. In an instance where the Contractor does not submit an application prior to the assessment date, the Project Manager can then assess the lesser of (Clause 50.4):
- The amount the Project Manager assesses as due at the assessment date; and
- The amount due at the previous assessment date.
The most the Contractor would be entitled to be paid is nothing. The Contractor may even be required to make a payment to the Employer (if bullet point 1 applies). The Contractor must ensure it submits an application or it will not be paid anything further in this payment interval.
The contract requires the application to set out the sum the Contractor considers to be due. To gain the advantages of the application being a "default payment notice"; under the Construction Act, the Contractor should also ensure the application includes the basis on which the sum is calculated, even though this is not required by the contract.
The Contractor’s application, or failure to issue an application, should be followed by a payment certificate from the Project Manager. If the Project Manager fails to issue a payment certificate, then the Contractor’s has an opportunity to serve a default payment notice. The original application could stand as a default payment notice if it meets the requirements of the Act (for example it states the sum and the basis of calculation).
If either Party wishes to pay less than the ‘Notified Sum’ they are to notify the other Party not later than 7 days before the final date for payment. This is in accordance with Y2.3. The terminology is issuing a ‘Notice of intention to withhold payment’ under the NEC3 whereas the NEC4 refers to this as a ‘Notice of intention to pay less’.
The final date for payment is then 14 days from when the payment becomes due, or such other period as identified within the Contract Data. This results in the standard payment timescales of the NEC contracts to be 21 days payment terms.
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