Enforcing payment obligations under construction contracts by insolvency proceedings

Mason, James; Ndekugri, Issaka; Silverio, Karina

Abstract

Purpose
States have intervened with legislation to improve cashflow within construction project supply chains. The operation of the UK’s Housing Grants, Construction and Regeneration Act 1996 leads to payment obligations stated either as a contract administrator’s certificate (or equivalent) or an adjudicator’s decision. The purpose of the intervention would be defeated unless there are speedy ways of transforming these pieces of paper into real money. The combination of the legislation, contractual provisions, and insolvency law has produced a minefield of complexity concerning enforcement of payment obligations stated in these documents. Unfortunately, the knowledge and understanding required to navigate these complexities has been sorely lacking. The research reported was undertaken to plug this gap.

Research Methodology
Legal research methods and case study approaches, using relevant court decisions as data, were adopted.

Findings
(i) The enforcement method advised by the court is the summary judgment procedure provided under the Civil Procedure Rules; (ii) An overdue payment obligation, either under the terms of a construction contract or an adjudicator’s decision, amounts to a debt that can be the subject of insolvency proceedings. (iii) Although the insolvency enforcement method has been successfully employed on some occasions, using it purely as a debt collection weapon would be inappropriate and likely to be punished by the court.

Originality
The paper contributes to knowledge in two ways: (i) it maps out the factual situations in which these payment challenges arise in language accessible to the construction industry’s professions; and (ii) comparative analysis of payment enforcement methods to aid decision making by parties to construction industry contracts. It is relevant to the other common law jurisdictions in which similar statutory interventions have been made.

• Journal Article Type: Article
• Acceptance Date: Nov 7, 2023
• Online Publication Date: Apr 8, 2024
• Publication Date: Nov 12, 2024
• Deposit Date: Jan 3, 2024
• Publicly Available Date: May 9, 2024
• Journal: Journal of Financial Management of Property and Construction
• Print ISSN: 1366-4387
• Publisher: Emerald
• Peer Reviewed: Peer Reviewed
• Volume: 29
• Issue: 3
• Pages: 372-387
• DOI: https://doi.org/10.1108/JFMPC-08-2023-0051
• Public URL: https://uwe-repository.worktribe.com/output/11547758