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Take care when suspending construction works for non-payment

Updated: February 14, 2019

Can I Suspend Construction Work If I Am Not Being Paid?

There may be times when an employer or contractor breaches a contract or violates their payment agreements. This is an inevitable and unfortunate reality of construction contract work. In these situations, most contractors seek to suspend the work until resolution of the issue, and as long as the suspension is in accordance with the contract, rightly so. No one should be expected to work for free.

Fortunately, where the contract is silent, there are laws that protect contractors suspending construction work in these types of situations. These laws even can allow you to receive compensation for damages relating to the suspension of work. However, you must follow the proper legal procedures to suspend the work correctly. If you do not, you run the risk of being held liable for significant legal costs and damage claims. This can happen even if the client wrongly withholds payments or attempts to terminate the construction contract.

The Housing Grants Construction and Regeneration Act of 1996 details your rights as a contractor or subcontractor where the contract does not. Section 112 (listed below) lays out your rights to suspend construction work. It also details the procedures that you must follow in order to do so. You’ll notice it states that you – the suspending party who has not been paid –  must satisfy additional conditions. These conditions, laid out in Sections 110 and 111, must be met to be in compliance with the law. Also, note that the Act does not apply to all construction jobs. For instance, it excludes those involving residential occupiers.

This legal complexity is why we recommend that you always seek legal counsel before suspending any work. That way, you can ensure that you will be covered and stand the best chance for receiving your due compensation.

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Section 112: RIGHT TO SUSPEND PERFORMANCE FOR NON-PAYMENT

1) Where the requirement in section 111(1) applies in relation to any sum but is not complied with, the person to whom the sum is due has the right (without prejudice to any other right or remedy) to suspend performance of any or all of his obligations under the contract to the party by whom payment ought to have been made (“the party in default”).

2) The right may not be exercised without first giving to the party in default at least seven days’ notice to suspend performance.

3) The right to suspend performance ceases when the party in default makes payment in full of the sum referred to in subsection (1).

(3A) Where the right conferred by this section is exercised, the party in default shall be liable to pay to the party exercising the right a reasonable amount in respect of costs and expenses reasonably incurred by that party as a result of the exercise of the right.

4) Any period during which performance is suspended in pursuance of, or in consequence of the exercise of, the right conferred by this section shall be disregarded in computing for the purposes of any contractual time limit the time taken, by the party exercising the right or by a third party, to complete any work directly or indirectly affected by the exercise of the right
Where the contractual time limit is set by reference to a date rather than a period, the date shall be adjusted accordingly.

Summary of Law

In short, Section 112 states that you have the right to suspend work given two conditions. Firstly, you must have met the requirements laid out in Section 111. Secondly, you must give the offending party 7 days’ notice. This part is key. If you fail to give them the required notice, you can be liable for damages. This is even if they have not paid the contractual obligations.

Subsection 3 states that your right to suspend work ends when the client makes the payment in full. This payment can include additional sums relating to the costs and expenses during the suspension. Working with a legal counsel can help ensure that you receive the full sum that you are due. This is regarding the payment for the work. As well, it includes the additional costs incurred as a result of suspending work because of non-payment.

The last point of Section 112 states that the period of time for which work has been suspended does not count as part of the contractual time limit, if one exists. As an example, let’s say your contract states that work will finish in 8 months. If you had to suspend work for 3 months, those 3 months will not count towards the 8-month timeline.

Recommendations

If a client is withholding payment, the right to suspend construction work can be a powerful leveraging tool. It protects your rights as a construction contractor. However, this is only the case if you correctly follow the contract procedures and/or those above. Most cases require a complex analysis before it would be deemed wise to suspend work. One misstep can cost you a fortune and create a whole new set of problems. That is why we always recommend seeking legal advice before moving forward with a suspension of work.

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Jonathan Waters has over 12 years of experience advising businesses in relation to commercial disputes and how to avoid or resolve them. He has a particular interest in construction law and adjudication, and he is currently studying for an Msc in Construction Law & Dispute Resolution at King’s College. Before starting Helix Law, he was the partner in charge of Commercial Litigation, Employment Law and Property Litigation at Stephen Rimmer LLP. He has a degree in Business Administration and before qualifying as a solicitor he worked in industry and investment banking for over a decade.

This article is written to raise awareness of the issues it discusses and it may not be updated after it is first written, even if the law changes. It is not intended to be legal advice and cannot be relied on as such. Helix Law is not responsible or liable for any action taken or not taken as a result of  this article. If you think the matters set out affect you and you wish to apply them to your particular circumstances then we are happy to give you free initial telephone advice.