Notices of suspension in construction contracts – why two wrongs don’t make a right
The recent announcement that Midas Construction Limited has gone into administration is a salutary reminder that construction contractors and sub-contractors should consider responding swiftly and appropriately to incidents of late payment under construction contracts. Failure to swiftly and appropriately address incidents of late payment could leave your business at risk of making substantial losses, should the other party become insolvent and ultimately fail.
Contractors and sub-contractors who operate under construction law contracts will want to consider reducing their exposure to risks associated with late payment by suspending performance of works as soon as payment notices go unpaid. Failure of the paying party to pay the sum set out in the payment notice by the due date entitles the receiving party to not only pursue the payment as a debt but also, perhaps more importantly to many sub-contractors, suspend works on the project in question.
Any legitimate suspension of works will permit the receiving party to remove equipment and plant from site, as well as withdrawing labour from the project. The reasonable costs of suspension or withdrawal of the works are recoverable from the paying party. Collectively, these are powerful provisions in favour of the receiving party, as they serve to incentivise the paying party to make payment in order to avoid the disruption of potentially losing a key member of the project team.
Suspension of works must be exercised with caution, as there is likely to be a very specific process to follow in almost all construction contracts. Failure to follow that process can amount to a serious breach of contract, creating a potential liability in damages and risking payment being legitimately withheld in the future. Unfortunately, just walking off site is not an option!
A written notice of suspension must be served upon the paying party in accordance with the provisions of the contract, usually providing no less than 7 days’ notice of the intention to suspend the works. The content of the notice of suspension must include a number of relevant pieces of information and must be validly served in accordance with the contract terms. If the paying party makes payment in full during the notice period, the notice of suspension will cease to apply. If a future failure to pay arises, a further notice of suspension will be required.
At Wolferstans Solicitors, we can promptly assist your business with preparing any notice and serving it on the other party, thereby swiftly securing the legal right to suspend performance, whilst removing any risk to your business that a repudiatory breach of contract will arise. We are happy to give preliminary advice on such matters and assist with the necessary processes flowing from this.
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