International Construction Law Review
“MONEY IS THE LIFEBLOOD OF CONSTRUCTION”: SECURING PAYMENT UNDER ENGLISH LAW1
Julian Bailey2
INTRODUCTION
The theme of this AGCLP seminar is “money is the lifeblood of construction – how to keep it flowing under a common law or civil law system”. The concept of cash flow is self-evidently important to any business, including one operating in the construction industry. Being paid for work performed is necessary to meet the costs of production, to service debt and to provide a return to owners of the business.
What do we mean by “cash flow”? I suggest there are at least two aspects of the concept of “cash flow” which require attention. The first is regularity of payment. Under the major standard forms of contract in England, and since 1998 by law,3 construction contracts make provision for contractors to be paid on a regular basis (usually monthly), as work is performed. The second aspect of “cash flow” is the fact of payment – leaving aside its regularity – as opposed to not being paid at all for work performed or services provided. The mechanism by which payment is made may vary, including direct payment (e.g. by employer to contractor), payment by a third party (such as a guarantor), or payment out of the proceeds of assets.
This paper will consider both of those features of “cash flow”, and non-statutory legal devices that may be deployed with a view to securing payment. Before doing so, it is necessary to set the scene by describing
1 A paper presented at the Anglo-German Construction Law Platform (“AGCLP”) seminar held at King’s College, London on 24 June 2014. The paper is intended to complement one presented at the seminar by Professor Rudi Klein on the same topic, where Professor Klein is considering statutory measures designed to secure a contractor’s (or sub-contractor’s) “cash flow”. The references throughout the paper to “English law” is a shorthand for “English and Welsh” laws. At common law there is no distinction between English and Welsh laws, although under its devolved powers the Welsh Assembly has made laws affecting the building industry which are specific to Wales, these laws being concerned with building regulations.
2 Solicitor, White & Case LLP, London; Vice-Chairman of the Society of Construction Law (UK).
3 By virtue of Part II of the Housing Grants, Construction and Regeneration Act 1996, which took effect on 1 May 1998. There are, however, a number of exceptions to the Act’s application. For example, in Public Private Partnerships (“PPPs”), contracts between the government and the special purpose vehicle company (“SPV”) set up for the PPP, and contracts between the SPV and “Tier 1” contractors and suppliers, are not subject to the legislation: Construction Contracts (England) Exclusion Order 2011 (SI 2011 No 2322). The whole legal and financial structure of PPPs is inimical to the concept of a contractor being entitled to payment as it performs work. Rather, the SPV is only entitled to payment once it is providing the relevant infrastructure or service the subject of the PPP. It may also be noted that the 1996 Act has no extra-territorial application, meaning for projects outside of the UK that even if English law (or indeed the laws of either Scotland or Northern Ireland) is agreed to be governing law of the contract, the 1996 Act will not apply.
Pt 4] Money is the Lifeblood of Construction
521