John Elven discusses the steps you need to take to submit a payment application in an NEC4 contract. And what happens if you fail to submit one.
The current climate is difficult for many businesses. It is now even more important for contractors and subcontractors to follow the payment terms of the contract to reduce the risk of cash flow problems and perhaps even insolvency.
Focusing on the standard NEC4 Engineering and Construction Contract, applications for payment are a requirement in NEC4.
Clause 50.2 states: “The Contractor submits an application for payment to the Project Manager before each assessment date setting out the amount the Contractor considers is due at the assessment date. The Contractor’s application for payment includes details of how the amount has been assessed and is in the form stated in the Scope.”
Required steps in submitting a payment application:
- the Contractor must set out the amount it “considers is due …”
- the Contractor needs to provide ‘details’ of how the amount has been assessed
- Contractors need to consider any requirements for ‘applications’ as stated in the Scope.
Assessing the amount due:
Clause 50.1 states: “The Project Manager assesses the amount due at each assessment date.”
But, in terms of the Contractor’s application, clause 50.3 identifies that the amount due at the assessment date is:
- “the Price for Work Done to Date”
- “plus other amounts to be paid to the Contractor,” and
- “less amounts to be paid or retained from the Contractor.”
What happens if you fail to submit a payment application?
Clause 50.4 states: “If the Contractor does not submit an application for payment before the assessment date, the amount due at the assessment date is the lesser of
- the amount the Project Manager assesses as due at the assessment date, assessed as though the Contractor had submitted an application before the assessment date, and
- the amount due at the previous assessment date.”
This means if the Contractor fails to submit a valid application before the assessment date, it is unlikely anything will be paid to it for that assessment. Indeed, it may be that the Project Manager’s assessment is such that money has now become due from the Contractor back to the Client.
As such, it is essential to have a valid application in place such that any dispute in respect of the sum the Project Manager now states is due can be put before the adjudicator.
Hence, it is essential to ensure that Contractors issue applications for payment correctly and on time.
John Elven is a senior consultant at Arbicon
