What contracts does the Late Payment Act apply to?
The Late Payment Act applies to all business to business contracts for the supply of goods and/or services. It goes without saying that the Late Payment Act can, therefore, apply to construction contracts.
How may the Late Payment Act assist you?
If your construction contract does not expressly provide for a remedy if payment is made late or, alternatively, if the remedy provided for is not substantial then the Late Payment Act will be able to assist you by implying a term into the construction contract.
The implied term will give you an entitlement to claim statutory interest at the rate of 8 per cent above the Bank of England base rate on any amounts not paid by the final date for payment. The Bank of England base rate is currently 0.5 percent.
In addition to your right to claim interest, the Late Payment Act also gives you a right to claim compensation by way of a fixed sum. The sum that you are entitled to ranges from £40 to £100 dependent on the amount of the debt.
What has the Late Payment of Commercial Debts (Amendment) Regulations 2018 changed?
The Late Payment of Commercial Debts (Amendment) Regulations 2018 (the “Regulations 2018”) came into force on 26 February 2018. The Late Payment Act must apply in order for the Regulations 2018 to be applicable also.
The purpose of the Regulations 2018 is to enable representative bodies (for example, the National Federation of Builders, the Federation of Civil Engineering Contractors, the Royal Institution of Chartered Surveyors and the Institute of Civil Engineers) to act on behalf of enterprises in challenging a contract term or engaging in a practice in relation to the contract if such term or practice appears to be grossly unfair. The term or practice must relate to the date or period for payment of a debt, the right to interest for late payment of a debt, or compensation arising out of late payment of a debt. Under the Regulations 2018, the representative body is free to decide whether to proceed with the case and make an application to the court.
Whether or not the remedies offered by the Regulations 2018 will be utilised to the same extent as those provided for in the Late Payment Act remains to be seen, however, the Regulations 2018 has the ability to instill confidence in smaller and medium-sized businesses when faced with unfair contractual terms imposed by much larger companies.