If you are a contractor facing non-payment on a construction project, the question that often arises is whether you can ‘down tools’. In circumstances where the Construction Act applies the answer is yes (subject to the points below), but it is essential to understand the framework surrounding contract suspension before walking off site. While suspending works can be a powerful tool to compel payment, it carries risk, and the practical consequences must be considered and weighed carefully.

When can a contractor suspend works?

As a contractor, you can only suspend works if:

• Your contract includes a specific right to suspend; or

• You have a statutory right under section 112 of the Housing Grants, Construction and Regeneration Act 1996 as amended (the “Construction Act”).

Statutory right to suspend

It is important to note that the Construction Act only applies to certain contracts and not necessarily all contracts involving constructions works are classified as a “construction contract”.

Under section 112 of the Construction Act, the unpaid party has the right to suspend performance of any or all of its obligations under a construction contract if payment is not made by the final date for payment.

This statutory right, introduced by the Construction Act assists contractors to maintain cashflow and discourage employers from delaying or avoiding payment. The statutory right does not need to be recorded in the construction contract, it automatically applies, even in the absence of an express suspension clause.

Under section 112 of the Construction Act, the unpaid party is also entitled to additional time involved in suspending and remobilising and the reasonable costs of suspension.

To rely on this statutory right, the contractor must:

• Be owed monies under a contract where the final date for payment has passed; and

• Serve a written notice of intention to suspend, giving at least seven days’ notice and clearly stating the grounds for suspension.

It is vital for contractors to get the written notice correct as if the notice is defective or served incorrectly, any suspension may be considered wrongful, putting the contractor in risk of repudiatory breach of the contract, which would entitle the employer to terminate the contract and claim damages.

Contractual right

A statutory right relates solely to non-payment and therefore cannot be used in response to a breach of contract other than non-payment. To remedy this, the parties may agree a contract term giving them the right to suspend for other reasons for example failure to provide payment security or meet certain project milestones.

Construction contracts, such as JCT contracts, usually contain a standard clause which entitles a party to suspend performance of its obligations. If the contract contains a suspension clause, it should also set out the procedure for suspension, how long the suspension can last before triggering termination rights; and what happens when works resume.

Is suspension the right option?

While suspension can protect your position and apply pressure to the paying party, it is not without its drawbacks. There are legal and commercial considerations that the contractor should consider before invoking their right to suspend, packing up and walking off site.

Risks to consider:

• If your notice is invalid or suspension is not justified, you could be liable for breach of contract which could entitle the employer to terminate the contract and claim damages for breach, something that you want to avoid, particularly where termination may result in substantial losses to the employer.

• If the contractor walks off the site without proper notice, the costs that the employer can claim often exceed the costs that the contractor was initially owed. These may include costs associated with project delays, costs of a replacement contractor and loss of future work.

• Suspension may disrupt the wider project and can affect third party’s such as sub-contractors or consultants. This could cause a delay which impacts programme milestones and trigger claims from other parties.

• Even during suspension, certain obligation will still apply including maintaining professional indemnity insurance and complying with CDM Regulations.

• In tight-knit sectors such as construction, a suspension can sour long-term relationships with clients, especially repeat clients. Contractors should also consider whether it is worth upsetting the employer by suspending, or even threatening to suspend contracts.

• Suspension allows the contractor to pause work while continuing the contract. However, once payment is made, the suspension ends, and the contractor must promptly return to site and resume their obligations under the contract therefore the contractor must be ready to do so. Section 112 of the Construction Act does however give the unpaid party a right to additional time for remobilising. 

• The statutory right under section 112 Construction Act can only be triggered when there is a failure to pay a notified sum, not just any sum one party believes is due.

Conclusion

Suspension is a useful tool used to force payment in the event of default by the employer however it is important to seek legal advice before exercising these rights and threatening to walk off site. If you are considering suspending works and would like tailored advice on whether you are entitled to do so, and how best to proceed, please contact us.

In addition to advising on your potential right to suspend, we will naturally advise you on the potential costs, risks and benefits of all your options, and assist in resolving your dispute.

To discuss the content of this article, or for further advice on the issues raised, please contact us to speak to a member of our Dispute Resolution Team.