Payment - Scottish Construction Contracts - page 198

to be due and the basis on which that sum is calculated. Parties are free to revise the
seven-day notice period, so long as a prescribed period is retained.
Unlike the SBC and the SBC/DB, the NEC3 does not provide for a final payment
process; rather the Project Manager can assess changes to the amount due at comple-
tion of the works, as and when required.
8.1.7 Pay when paid and pay when certified
Prior to the coming into force of the 1996 Act, the timing of payments under building
contracts was often stipulated to be dependent upon the receipt of funds by the paying
party from another source. The most common example was for main contractors to
make it a condition of a sub-contractor's entitlement to payment that the main con-
tractor had in turn received payment from the employer under the main contract, see
Taymech Ltd v. Trafalgar House Construction (Regions) Ltd (1995). Such provisions,
commonly known as 'pay when paid' clauses, were outlawed by the 1996 Act, except
in very limited circumstances.
Section 113 provides that any contractual provision which makes payment under
a construction contract conditional on the payer receiving payment from a third per-
sonisinefectiveunlessthatthirdpersonisinsolvent.Perhapsunsurprisingly,many
contractors include provisions in their construction contracts that seek to rely upon
the insolvency exception contained in section 113 of the 1996 Act. he case of William
Hare Ltd v .ShepherdConstructionLtd (2009) is, however, a salutary lesson that where
a party wishes to rely upon the insolvency exclusion contained in section 113 of the
1996Act,careshouldbetakentospecifyinthecontracttheprecisesituationsorevents
that are to define that third party's insolvency. If, as in this case, a particular insolvency
event or situation arises that is not covered by the contractual provisions, the court
is unlikely to confer the benefit of the carve-out from section 113 of the 1996 Act.
Where a payment provision is ineffective, then the relevant provisions found in Part
IIoftheScheduletotheSchemewillapply.
Prior to the amendments to the 1996 Act, it was open to parties to a building
sub-contract to agree to a provision that made payments to a sub-contractor con-
ditional upon the value of work carried out by the sub-contractor being valued and
included in a certificate issued under the main contract, though the English case of
Midland Expressway Ltd v. Carillion Construction Ltd (No. 2) (2005) cast some doubt
onthis.heamendmentstothe1996Actintroducedbythe2009Acthaveputtheissue
beyond doubt. As mentioned earlier, subject to limited exceptions, section 110 (1A)
of the 1996 Act provides that a construction contract will not provide an adequate
mechanism for payment, as required by section 110, where payment is conditional on
(i) the performance of obligations under another contract or (ii) decisions by a third
party that obligations under another contract have been performed (e.g.. a certificate
of making good defects under a main contract).
However, the Construction Contracts (Scotland) Exclusion Order 2011 expressly
excluded contracts pursuant to which a party to a relevant contract has sub-contracted
to a third party some or all of its obligations under that contract to carry out, or
arrange that others carry out, construction operations. In effect, the Exclusion Order