Time and cost are the two forces in resolving construction disputes. Adjudication is fast meeting one side of the equation and is the most used dispute resolution process, but it is not always effective in cost-prohibitive disputes, Arbicon explains
It is easy for streetwise paying parties to knock off £10,000 from payments due or keep retentions of up to a similar sum. It is cost prohibitive to pursue such sums as parties are precluded from cost recovery in both adjudication and in the small claims court.
Late Payment of Commercial Debts (Interest) Act 1998 (LPCD): Should it be made mandatory?
There are always issues and complaints rehearsed in the media/parliament about late payment being a continual problem; however, nothing is ever done. But there is a simple answer to all of it.
The LPCD Act currently allows for debt recovery costs and interest at 8% over the base rate but only if the parties haven’t agreed something else, such as 2% and no costs, which is quite normal for payees to be forced to sign up to but in construction dispute resolution it is totally inadequate.
If the entitlement to debt recovery costs and interest at 8% over the base rate were mandatory and all contracts made to comply with those provisions and made to expressly take precedence over all other legislation, including the Construction Act, the world of payment would transform.
What effects would this simple legislation amendment have on the construction industry?
Contractors and subcontractors pursuing smaller sums, retention and the like, would then do so in the comfort that their costs in recovery will be assessed and interest will be paid. The express precedence over the Construction Act would allow claims for debt recovery costs incurred in adjudication.
Costs have been swept under the carpet as if dirt for a long time and it needs to now seriously be addressed. Shouldn’t an injured party be compensated so they are put back into the position they would have been in but for the other party’s breach? If the costs equal the claim, so be it. What will happen is the paying party that thinks it can keep £10,000 by prevarication will be at risk of not only having to pay the sum due but the costs too.
Any fetter to adjudication in debt recovery cases due to cost would be eradicated and the process, which is now very effective, would be totally available to the smaller firms and smaller claims. Parties short on funds or facing possible bankruptcy due to the actions of the other party would get a fighting chance with costs recoverable.
The culture needs to change on cost recovery and legislation can do this through a simple change to the LPCD Act.
For more information or advice on procuring construction contracts or dealing with construction disputes, get in touch with the Arbicon team.
Arbicon
Tel: 01733 233737
advice@arbicon.co.uk
