What Can We Do When We Don’t Get Paid?

What can we do if we don’t get paid? We get asked this question a lot.

In some regions, legislation is quite strict on payment terms, but in other parts of the world it is very common for the paying party to hang onto their money for as long as possible.

Most forms of construction contract will include some sort of remedy for non-, or late payment, so you will need to check what these are on your projects. As an example though, let’s have a look at what the FIDIC 1999 Editions have to say about late payment.

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.’

This provision is quite clear; as soon as the payment is overdue, I would submit a notice that payment is overdue along with a claim for financing charges. The notification should serve as a polite reminder just in case the payment is stuck in the Employer’s system, or the Engineer has failed to issue the payment certificate.

If the notice resolves the problem, then all is well. If not, and the payment remains unpaid, I would prepare a claim for financing charges and submit it at monthly intervals until the payment is made.

Such a claim is less about recovering additional money – the amount will not add up to very much anyway – and more about making the Engineer and Employer aware that you will insist on your rights. Hopefully, this will make them think twice about defaulting again or failing to comply with any other obligations.

FIDIC gives the Contractor additional rights under Sub-Clause 16.1 (Contractor’s Entitlement to Suspend Work), which states that:

‘If the Engineer fails to certify in accordance with Sub-Clause 14.6 [Issue of Interim (Payment Certificates] or the Employer fails to comply with Sub-… or Sub-Clause 14.7 [Payment], the Contractor may, after giving not less than 21 days’ notice to the Employer, suspend work (or reduce the rate of work) unless and until the Contractor has received the Payment Certificate, reasonable evidence or payment, as the case may …

If the Contractor suffers delay and/or incurs Cost as a result of suspending work (or reducing the rate of work) in accordance with this Sub-Clause, the Contractor shall give notice to the Engineer and shall be entitled subject to Sub-Clause 20.1 [Contractor’s Claims] to:

‘(a)    an extension of time for any such delay, if completion is or will be delayed, under Sub-Clause 8.4 [Extension of Time for Completion], and

‘(b)    payment of any such Cost plus reasonable profit, which shall be included in the Contract Price…’

From the above, after submitting a 21-day notice, the Contractor may either suspend the Works or reduce the rate of progress and will be entitled to an extension of time arising from such actions and the recovery of Cost plus profit. If we consider that Cost could mean demobilisation, remobilisation and prolongation costs, then this could soon mount up to a considerable sum.

The 2017 editions of FIDIC contain slightly changed wording to the above two clauses, but they are essentially the same as the 1999 Editions in relation to failure to pay.

My recommendation would be to submit the 21-day notice as soon as the payment or certificate becomes overdue. Again, this may serve to resolve the situation and if so, the notice will have achieved the required result.

However, contractors are often reluctant to enforce the suspension and actually continue to work normally after the 21-days have expired. I have to question the wisdom of such an action. If you don’t suspend the Works, there is no delay and thus, no entitlement to an extension of time or payment of cost. If the Contractor continues to work at a reduced rate, he will later have to prove that he has reduced the rate of work, which can often be difficult.

I once rejected a Contractor’s claims in such a situation because, when examining actual against planned progress, the progress had clearly not been reduced. I would recommend that contractors seriously consider keeping their resources away from site for a couple of days.

Such an action will force the Employer to unlock all but the most serious of issues. If the Employer does not pay when faced with this situation, then questions must be asked about his ability or willingness to pay for the rest of the project and if this is the case, does the Contractor wish to keep digging himself into a deeper financial hole?

What do you think? Is it easier to obtain payment when the Employer still needs something from the Contractor, or when the project has been completed? Leave your answer in the comments below.

This blog was written by ICCP Executive Officer and Fellow, Andy Hewitt. If you would like to learn more about claims, check out our training partner, Claims Class.

Enjoying the ICCP’s articles? Why not sign up to our mailing list and receive new articles straight into your mailbox. Or, want access to a library of member’s only content on contracts and claims, check out our Membership page and join the ICCP community today.