This year began with a significant Supreme Court of the United Kingdom decision in the well-known case of Providence Building Services Ltd v Hexagon Housing Association Ltd. The judgment provides important clarification on the operation of termination provisions in standard form construction contracts. It also raises questions about how contractors can respond to repeated late payments.
Background
Hexagon Housing Association Ltd was the employer under a 2016 JCT Design and Build contract. Providence Building Services Ltd was tasked with designing and building several apartment blocks for a contract sum of approximately £7.2 million.
In relation to a payment application, a payment was due on December 15, 2022, but Hexagon failed to pay. The following day, Providence issued a notice of specified default on the grounds that Hexagon failed to pay the amount due by the due date.
Under the contract, Hexagon had 28 days to pay or face possible termination. The payment was made well before the 28 day period, so Providence had no grounds to terminate the contract.
Works continued, but in May 2023 Hexagon failed to make a second payment by the due date. The next day, Providence terminated the contract, relying on clause 8.9.4:
“If the Contractor for any reason does not give the further notice referred to in clause 8.9.3 […] but the Employer repeats a specified default [….] then the Contractor may by notice to the Employer terminate the Contractor’s employment…”
In response, Hexagon argued that clause 8.9.4 issued by Providence only applies if a right to terminate had previously accrued under clause 8.9.3.
“If a specified default or a specified suspension event continues for 28 days from the receipt of notice under clause 8.9.1 or 8.9.2, the Contractor may on, or within 21 days from, the expiry of that 28 day period by a further notice to the Employer terminate the Contractor’s employment under this Contract.”
Because the first late payment was cured within 28 days, Hexagon claimed that no termination right ever accrued.
The Supreme Court’s Position
The Supreme Court reversed this decision reinforcing the principle that termination rights must be strictly in accordance with the contract. It upheld the TCC decision that clause 8.9.4 is reliant on 8.9.3.
Did the Supreme Court Get It Right?
The outcome narrows down options for contractors seeking to rely on repeated late payment as a route to termination under the JCT form.
Before the Supreme Court’s final decision, the Court of Appeal’s approach highlights the reality that repeated failures of payment can undermine trust and contractual performance.
These failures increase the financial costs and affect the stability of a project’s delivery. As it’s disruptive to a contractor’s cash flow, the Court of Appeal approach protects them from the potential problem of repeated late payments. It could be argued that the Court of Appeal approach considers that a contract should be viewed in the appropriate context of the project.
What Can You Do About Late Payments?
While termination may not be constrained in this context, contractors are not without protection. There are a number of options available to contractors facing difficulties getting paid on time:
Adjudication
Originally intended to improve cash flow in construction, adjudication can be used when an employer fails to make payment or serves a pay less notice that is not valid. A contractor can typically get a binding decision within 4-6 weeks, providing an easy route to securing payment and restoring cash flow.
Suspending Work Under Section 112 HGCRAS
Section 112 of the Housing Grants, Construction and Regeneration Act 1996 provides a statutory right to suspend projects where the notified sum has not been paid by the final date.
If payment hasn’t been made:
- The contractor must provide at least seven days’ notice.
- The right to suspend the project stops once the party in default makes the full payment.
This provision establishes a clear plan for protecting contractors from non-payment and reinforces the principle that continuing the project is reliant upon timely payment.
Conclusion
The Supreme Court’s decision in Providence Building Services Ltd v Hexagon Housing Association Ltd provides clarification on the operation of termination provisions under the JCT Design and Build Contract 2016. Termination may be constrained, but contractors who act promptly and strategically still have effective legal ways to respond to late payment and manage risk.
If you’re dealing with late payments and are unsure of what to do, get in touch today. From advice to adjudication, our team can help.