Including invoices in the payment mechanism

  • If you need an invoice to pay a supplier, how does that normal business process fit with the requirements of the Housing Grants, Construction and Regeneration Act 1996 (Act)?
  • What are the consequences if you don't get an invoice and as a result can't pay?

What is it about?

As a result of their internal payment procedures a number of employer clients (both public and private sector) can't process payments without supplier invoices. Sometimes there are additional requirements as to timing of the submission of invoices to fit with payment runs. You might think it inconceivable that a payee wouldn't provide an invoice to facilitate payment, but what if the amount certified as due by the payer is less than the amount applied for and what if the contract doesn't require an invoice?

Why does it matter?

The Act requires relevant contracts to contain an adequate mechanism for payment and to provide for a final date for payment for any sum which becomes due. The Act sets the requirements for due dates, payment notices, pay less notices and final dates for payment but makes no mention of the important practical mechanic of invoicing. The JCT and other standard forms also don't mention invoices.

In the absence of any specific wording most construction contracts (including the JCT contracts) tie the final date for payment to a period of time from the due date. Attempts have been made to tie the final date to the issue of the payment certificate but, on its own, that falls foul of the Act's requirements as it could allow the payer to frustrate the payment process.

So, without amendment there is no obligation on the payee to provide an invoice for the sums due in order to receive payment. If the payer cannot pay without an invoice and the payee fails to provide one, then the payer may well not be able to pay by the final date for payment and will be liable for interest for late payment and runs the risk of suspension of the works.

Solution

One solution is to amend all relevant contracts (and payment obligations namely interim, final and termination) to place an obligation on the payee to provide an invoice in the amount of the sum due, either: (i) that set out in the payment certificate; or (ii) in the absence of a payment certificate, that in the payee's application. The contracts are further amended so that the final date for payment is a stated period from receipt of the invoice to facilitate the business processes of the payer, but also to facilitate payment for the payee.

The position in relation to the interplay between pay less notices and invoices is more problematic. Pay less notices are issued so close to final dates for payment that to introduce another invoice related process (for example linking the final date to the issue of a credit note) which would necessitate an extension to the final date for payment could be seen as a process set up to make minimal reductions to payments with a view to extending payment periods, and accordingly could fall foul of the requirements of the Act. It is also likely to be resisted by the contractor as it would have the effect of delaying payment beyond the normal final date. A provision obliging the contractor to provide a credit note without linking the final date to such provision is helpful, but no guarantee that he will do so, or will do so prior to the final date. As such, without running the risk of falling foul of the Construction Act, the issue of a pay less notice means that the employer may need to find a practical solution which will enable him to pay less than the invoiced amount at that time.