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Revised Figures for Construction Industry

The revised figures recently released by the Office for National Statistics show that construction industry output rose by 1.4% between quarters one and two in 2013. Although this still represents a 0.5% fall compared with the second quarter of 2012, this is significantly less than the 1% in the previous estimate. The upward revision of construction output from 0.9% growth to 1.4% growth confirms that the renewed sense of industry confidence, boosted by measures taken by the government in the form of Help to Buy and sustained investment in infrastructure are being converted in measurable growth. The figures also reconfirm that the economy is returning to growth, with a rise in GDP of 1.5% in the second quarter of 2013 compared with the same period in 2012. The upward revision of 0.1% for the economy as a whole was driven by balanced growth across the economy, underpinned by a rise in business investment of 0.9% in addition to rises in domestic consumption. Julia Evans, chief executive of the National Federation of Builders, said: “The revised GDP figures show that the foundations for long-term growth are being put in place, showing the construction industry is moving in the right direction and playing its part in driving economic recovery. However, more needs to be done to make sure that this growth continues into 2014 and beyond. Through the industrial strategy for construction, continued collaboration between government and industry will ensure that the industry continues on the path to sustainable growth for the future”. Julia continued: “in addition to the welcome upward revision to construction output statistics, the figures show that growth across the economy is balanced with business investment rising by £270 million from £29.19 billion to £29.46 billion between quarters one and two in 2013. The proof that businesses are investing across the economy is a further sign that private sector confidence is being converted into financial investment and economic growth”. For further information contact the NFB press office on 01293 586664 or email press@builders.org.uk

Right to Claim Statutory Interest After 60 Days after 16 March 2013

Under the Regulations, statutory interest will begin to accrue 60 days (or 30 days where the paying party is a public authority) after whichever is the latest of:

1.     the day the payee performs the obligations to which payment relates;

2.     the day the payee submits a claim for payment; or

3.     the day the payer verifies or accepts goods or services provided (where the contract includes a verification or acceptance procedure).

The effect of the Regulations is therefore to impose a limit on how long a payment period can be before statutory interest begins to accrue. On a strict reading of the Regulations, it appears that if the contract has a payment period of longer than 60 days, the payment period will still stand but the payee has a right to claim interest after the 60 day period has expired, even if that is before the agreed contractual payment date.

However, the guidance on the Regulations issued by the government explains things differently. The guidance states “businesses must pay their invoices within 60 days”, but the Regulations, on a strict interpretation, do not say this. The Regulations say that statutory interest will start to accrue after 60 days. Businesses therefore do not have to pay invoices within 60 days if they do not wish to do so, but they may face a claim for statutory interest after the 60 day period applicable under the Regulations has expired.

In theory, it could therefore be costly to have payment periods of longer than 60 days. However, payers may not need to worry unduly about reducing their payment periods to 60 days or less because there are two important exceptions to the rule.

First, the 60 day rule appears, on a strict interpretation of the drafting of the Regulations and the Act, only to apply in cases where statutory interest applies i.e. not in cases where there is a contractual “substantial remedy” for late payment. Arguably, this means where there is a substantial contractual interest rate, the 60 day rule will not apply. However, given the wide range of remedies for late payment now available under the Act and the Regulations, it may be that payees can now argue that an interest rate alone does not constitute a “substantial remedy” and that contracts must provide more generous remedies in order to exclude the Act and the Regulations.

Secondly, the Regulations say that the 60 day rule does not apply in cases where the contracting parties have “expressly agreed” a payment period longer than 60 days and that period is not “grossly unfair”. The Regulations state that, in determining whether something is “grossly unfair”, all the circumstances should be considered. Specifically, anything that is a “gross deviation from good commercial practice and contrary to good faith and fair dealing” may be grossly unfair. It is not clear what is meant by “expressly agreed” or whether standard terms and conditions can give rise to an “express” agreement.

Ref Source: Hawkswell Kilvington www.hklegal.co.uk

Recovery of Reasonable Costs after 16 March 2013

The right to claim the “reasonable costs” of recovering a debt only arises when:

1. the Act applies i.e. when there is no alternative “substantial remedy” for late payment in the contract; AND

2. the fixed sum of £40, £70 or £100 (depending on the value of the debt) does not cover the payee’s reasonable costs of recovering the debt.

It is not clear from the Regulations what is meant by “reasonable costs”, and this has led some to question whether the costs of adjudication or legal proceedings can be recovered as “reasonable costs”. However, although the courts have yet to clarify the issue, it is unlikely the Regulations will be interpreted in this way.

The legal costs of adjudication are irrecoverable and the Housing Grants, Construction and Regeneration Act 1996 (as amended) prohibits contracting parties from including any term in their contracts which provides for one party to the pay the other’s legal costs incurred in adjudication. It would therefore be contradictory if the Regulations allowed the recovery of legal costs in adjudication proceedings.

As far as legal proceedings are concerned, if the Regulations permitted the automatic recovery of legal costs, this could undermine both the detailed procedural rules and the courts’ general discretion in relation to the award of costs.

It therefore seems that the “reasonable costs” which payees can recover under the Regulations will be limited to costs incurred prior to formal debt recovery proceedings, such as the administrative costs of sending letters and possibly the cost of preliminary legal assistance such as solicitors’ letters.

Payees should, however, note that it is unlikely the paying party will voluntarily pay their “reasonable costs”, at least not without considerable scrutiny of the costs incurred. In some cases, it may be necessary to consider legal action in order to recover costs, which is unlikely to be appropriate unless significant costs have been incurred. Payees should therefore ensure they keep detailed records of the costs they incur in recovering debts.

Ref Source: Hawkswell Kilvington www.hklegal.co.uk

Late Payment under Construction Contracts

 

The Late Payment of Commercial Debts Regulations 2013 (the “Regulations”) came into force on 16 March 2013. They apply to all commercial contracts, including construction contracts, entered into after this date. The Regulations amend the Late Payment of Commercial Debts (Interest) Act 1998 (the “Act”) by introducing new remedies for late payment.

Remedies for Late Payment For Contracts Entered Into Before 16 March 2013

The Act implies into contracts a statutory rate of interest on late payments of 8% above the Bank of England base rate. The Act also allows payees to recover a fixed sum as compensation for late payment of a debt. The fixed sums are £40 (for debts up to £999.99), £70 (for debts £1,000-£9,999.99) or £100 (for debts over £10,000).

Remedies for Late Payment For Contracts Entered Into After 16 March 2013

The Regulations implement EC Directive 2011/7/EU, which attempts to combat late payments in commercial transactions across the EU by increasing suppliers’ rights.

The Regulations introduce two new rights for payees which exist in addition to the rights already available under the Act:

1. A right for payees to claim the “reasonable costs” incurred in recovering the debt.

2. A right to claim statutory interest after 60 days.

These additional rights only apply to contracts entered into after 16 March 2013.

Ref Source: Hawkswell Kilvington www.hklegal.co.uk

Government to End Self build Tax - GIVE YOUR FEEDBACK

As you will by now be aware, on April 15th the Government announced that it proposes to exempt self builders from paying the Community Infrastructure Levy (CIL).
CIL, which was introduced under the Labour Government but began to be implemented by some councils in January 2012 (and now affects thousands of self builders in dozens of local authorities), raised a levy on new homes set at a standard charge per m² of new development. On average, self builders and developers affected by CIL were being asked to pay £100-150/m² – typically adding 10-15% onto build costs. Homebuilding & Renovating and NaSBA have been campaigning on this issue.

The result is that the Government now proposes to scrap CIL for self builders but, as part of the legislative process, has launched a consultation on the change. We are keen for as many self builders (all of whom could be affected by CIL charges in the future) and companies with an interest in the self build industry (which has seen many projects postponed or downsized as a result of CIL) to respond. If the consultation is not in favour of the self build exemption, CIL may well affect 1,000s of self builders in years to come.

NaSBA are co-ordinating the consultation process. We urge you to take two minutes to comment.

http://www.nasba.org.uk