Is there any specific legislation relating to payment in the industry?
Construction (2nd edition)
Each Australian state and territory has enacted legislation to regulate security for payment in the building and construction industry. These laws are not harmonised, with consequent differences between jurisdictions.
The Murray Review of Security of Payment Laws was issued in May 2018 and made 86 recommendations, including recommendations relating to harmonisation between jurisdictions. The New South Wales and Queensland governments recently enacted new security of payment legislation, which appear to address some of the concerns raised by the Review. The New South Wales government enacted legislation which is to come into force later in 2019. In Queensland, the state government enacted the Building Industry Fairness (Security of Payment) Act 2017 (Qld), which commenced on 17 December 2018. This Act ultimately repealed the Building and Construction Industry Payments Act 2004 (Qld) and the Subcontractors' Charges Act 1974 (Qld), to form a single statute containing all security of payment legislation for that state.
Other Australian states and territories (including Victoria, Tasmania, South Australia, Western Australia, the Northern Territory and the Australian Capital Territory) not yet amended their security of payment legislation.
The Law of 9 July 1971 relating to house construction and the sale of houses to be or being built contains several clauses governing the payments the client is to execute to the contractor, especially the advance payment that cannot exceed 5% of the contract price.
For public construction projects, detailed provisions on the payment mechanisms can be found in the Royal decree of 14 January 2013 on the general rules of performance of public procurement contracts (deadline for approval of the payment request, subsequent deadline for payment, interest rates).
In a B2B context, specific obligations in respect of payment, interest rates and compensation for debt recovery efforts, can be found in the Act of 2 August 2002 on combating late payment in commercial transactions.
There is no specific legislation with respect to the payment milestones or percentage for the construction price. Employers may make their own decision based on their business demands. Yet it should be noticed that if employers’ payment schedule is significantly behind the actual work completed by contractors, there may be a risk of “construction before payment”. Therefore, in judicial practice, it takes further consideration of relevant contract terms to determine the nature of relevant amounts, which may be an overdue construction payment or loan repayment.
The application of pay-when-paid clauses is not explicitly prohibited but is subject to the provisions of law prescribing the deadline for the payment between certain persons.
The Act on Financial Operations and Pre-Bankruptcy Settlement regulates, inter alia, the terms for the fulfilment of financial liabilities and the consequences of a delay in the fulfillment of financial liabilities. Thus, it also prescribes, in business transactions between undertakings, for the payment to be effected within 60 days, and in case one of the parties to the contract is a public entity, the payment by the public entity must be effected within 30 days.
Exceptionally, the mentioned terms can be prolonged to 360 i.e. 60 days.
Payment obligations depend on the respective contract. According to VOB/B-conditions, installment payments are to be granted in the shortest possible time intervals or at the agreed points in time to the amount of the value of the respectively proven contractual services. The claim for final payment will be due soon after examination and determination, at the latest within 30 days after receipt of the final invoice.
Unless otherwise stipulated between the parties to a typical construction contract, payment to the contractor of the agreed remuneration is due upon delivery of the project or upon delivery of specific parts of the works in case of partial payment (694 GCC). In this respect, if any payment due under the construction contract in not paid in full or properly credited, then the employer shall pay interest thereon starting on the date of delivery of the project or the respective parts thereof. As regards the public projects, payment of the contractor's remuneration is typically made in installments, according to the respective project schedule (Art. 152 of Public Procurement Law). The contract documents may provide for a down payment of up to 15% of the total contract price, the amortisation of which is made through retention of certain amounts from each partial payment (Art. 150 of Public Procurement Law).
Further to the above, Directive 2011/7/EU on combating late payment in commercial transactions was transposed into national law through Section G of Law 4152/2013, which applies on payments both between commercial entities and between commercial entities and the public sector.
There is no specific legislation relating to payment in the industry. However, due to AML rules, payments are customarily executed through wire transactions through the banks of the parties involved with corresponding compliance implications.
On public projects in the United States, Congress has imposed on agencies an obligation to pay every “proper invoice” within 30 days after its receipt. Under the Prompt Payment Act, an agency that fails to pay within the required time will be liable for interest on the delinquent payment. Furthermore, while the invoice must be "proper" in order to trigger the Prompt Payment Act requirements, an agency may not impose unreasonable requirements on its submission.
Many states have adopted their own version of the Prompt Payment Act that provides contractors or subcontractors who do work or furnish materials under a contract to prompt payment for materials or services provided. This type of statute is considered a corollary to a state’s mechanic’s lien law. The amount must be “undisputed,” i.e., there is no good faith dispute over the amount owed. Monies withheld by the owner or by an upstream contractor that are the subject of a dispute do not fall within the statute.
There are no specific legal rules governing payments in the construction sector.
The Registration and Control of Contractors Law of 2001 (Law 29 (1) /2001).
Brazilian legal system does not bring specific legislation relating to payment in the construction industry. The payment conditions will therefore be subject to general commercial rules set forth in the Brazilian Civil Code.
For public projects, Public Audit Offices (“Tribunais de Contas”) will audit payments made by the public administration. They have some specific understandings on what can constitute payment wrongdoings in the public sector. It is important to be aware of such understandings.
There is no specific requirement in Ireland as to how contractors should be paid. Typically, however, payments are made by electronic transfer. There is nothing in Irish law to prohibit payment by cash or cheque. How payments are to be made is usually stated in the governing agreement.
Subject to what is said below about the Construction Contracts Act 2013, parties are free to agree in their contracts the frequency of payments between them. Payment frequency is usually on an interim basis (e.g., monthly) or hinged off milestones (e.g., delivery of items to site).
Under the European Communities (Late Payment in Commercial Transactions) Regulations 2012, for business-to-business payments, the general deadline is 30 days unless otherwise stated in the contract. It is possible, if both parties agree, to extend payment terms to 60 days. The period may be extended beyond 60 days only if expressly agreed by the parties in the contract and provided that it is not grossly unfair to the supplier. The standard deadline for public authorities to process business payments is 30 days. Payment can be extended to 60 days only if it is expressly agreed and justified in light of the nature or feature of the contract.
Consultant appointments in Ireland typically provide for a lump sum, which is paid by instalments. This is not always the case and some appointments will provide for the consultant’s remuneration to be measured by way of a percentage fee against the total construction contract cost.
On 25 July 2016 the Construction Contracts Act 2013 (the 2013 Act) commenced in Ireland. The 2013 Act, among other things, sets out the minimum provisions in relation to payments to be made under a construction contract (the definition of which would include the typical appointments of consultants). The 2013 Act provides that a construction contract shall provide for the following:
- the amount of each interim payment to be made under the construction contract;
- the amount of the final payment to be made under the construction contract;
- an adequate mechanism to determine such payment amounts;
- the payment claim date, or an adequate mechanism for determining the payment claim date, for each amount due under the construction contract; and
- the period between the payment claim date for each such amount and the date on which the amount is so due.
Where the construction contract does not comply with the above requirements, the schedule to the 2013 Act will apply to the extent the construction contract does not comply. For example, if the construction contract does not set out the payment claim date, the schedule will apply and would allow for a payment claim date every 30 days after the commencement of the construction contract up to substantial completion and 30 days following the date of final completion.
In relation to subcontracts (where the subcontractor is the party executing the works), it appears from the 2013 Act that regardless of what the subcontract payment dates are stated to be, the maximum period between payment claim dates is 30 days (as per the schedule) but the parties are free to agree a period that is more favourable to the executing parties.
In the case of government contracts, the Public Works and related Services Law establishes a process of estimating the works, authorizations of the estimates, invoicing and payment. Payment is also regulated by the tax laws that define the ways of invoicing under a specific electronic regime.
In the case of private contracts, the terms of payment are free to be determined. Also, the payment has to satisfy the tax laws and regulations such as the issuance of electronic invoices (CFDIs).
The HGCRA 1996 prescribes a detailed interim payment mechanism to which nearly all UK construction contracts must conform. The Act envisages that the contractor will submit an interim payment application showing the amount it consider due at the “due date”; the employer (or contract administrator) must submit a payment notice recording “the sum due”; and then the employer must submit a “pay less notice” if it intends to pay less than the amount stated in the payment notice. The sum due must be paid on or before the “final date for payment”, and if not paid, can be recovered by way of adjudication Minor errors in the contents or timing of a notice may invalidate it and such errors often cannot be remedied until the next interim payment cycle.
Law 3/2004, of December 29thestablishes measures to combat late payment in commercial transactions, which transposes Directive 2000/35 / EC, of the European Parliament and of the Council, of June 29th 2009 is applicable. It establishes a payment period of 35 calendar days after the date of receipt of the goods or provision of services in case no date or payment period has been set in the contract, as well as the automatic accrual of interest of monetary delay due to the mere failure to pay on time.
In the contracts in which the Public Administration is a party, they are subject to Law 9/2017, of November 8th, on Contracts of the Public Sector, regulating in Article 198 the payment of the price by the Administration.
There is no specific legislation with respect to the payments in construction industry. However, if a construction contract does not provide otherwise, the entire contract price becomes payable only after the work is completed.
Unlike the United Kingdom, South Africa has no specific legislation regulating payments in the construction sector. The CIDB has published draft regulations under the CIDB Act (“the Proposed Amendments”) which are currently under review. When enacted, it is envisaged that the Proposed Amendments will regulate “Prompt Payment” to contractors on construction projects (and introduce an adjudication regime). At present, the parties’ arrangements as to payment are regulated contractually only.
Payments of construction contracts are generally performed in several instalments, which will depend on the advancement of the project.
For private contractor agreements, payment terms are regulated by general commercial rules which provide for a payment no later than 60 days from the issuance date of the invoice. By derogation, the parties can agree on a payment no later than 45 days end of the month following the issuance of the invoice. The project owner has also, in most cases, the obligation to provide a guarantee of payment to the contractor for the price of the contractor agreement (article 1799-1 of the French Civil Code).
There is no specific legislation relating to payment in the industry. In the context, it is however relevant to mention the newly passed Act on Measures against Money Laundering and Financing of Terrorism (2017:630), which is intended to prevent companies from being used for the labelled problems.
The parties are, in accordance with the freedom of contract principle, generally free to agree on the terms they wish.
However, under the Danish Interest Act, the agreed payment period between two businesses or a business and a public authority can generally not be more than 30 days. Other payment terms that are deemed unreasonable by a Danish court or an arbitration tribunal can also be set aside, but this would be unusual between professional parties.
- Article 665 of the Civil Act, dealing with contracts for work, states that payment for the object of a work contract should be made simultaneously with the delivery of the object. However, the parties can, and often do, agree to different terms of payment.
- Although parties can freely agree on payment periods, payment provisions between a contractor and its subcontractor may be regulated by the Fair Transactions in Subcontracting Act:
- The agreed date for payment by a contractor to a subcontractor should not be more than 60 days from the delivery of the work. Where the contractor and subcontractor have agreed to handle many frequent deliveries of work by issuing a combined invoice at regular monthly, weekly or other similar intervals, the agreed payment dates for the work included in each invoice should not be more than 60 days from the date of the invoice. This requirement may be deviated from where it is deemed that the parties fixed a longer period for payment on equal terms, or where an alternative date of payment is justified in light of the nature of the business and the attendant economic conditions.
- Additionally, a contractor must make payment to the subcontractor within 15 days from the date on which the contractor receives payment from the employer for the corresponding part of the work, unless the parties have agreed to a shorter period, in which case the payment must be made within such shorter period.
- In certain cases, a subcontractor may raise claims directly against the employer under the Fair Transactions in Subcontracting Act or the Framework Act on the Construction Industry. In either case, circumstances that would justify a subcontractor claiming directly against an employer include the following: cases where the contractor is unable to pay the subcontract price due to suspension of payments, bankruptcy or other similar reasons; the cancellation of the contractor’s construction business registration; or situations where the contractor has failed to pay the equivalent of two installments of the subcontract price when they have fallen due.