Recently main contractors have been able to avoid paying sub-contractors until payment to the main contractor has been certified under the main contract.
However, new legislation introduced under the Local Authority Democracy Economic Development and Construction Bill means that pay when certified clauses will be outlawed.
The Bill will bar such provisions and mean that main contractors could potentially face significant cash flow problems.
Further changes outlined in the Bill, which is expected to come into force by as early as 2010, include amendments to the default payment system and contracts will no longer have to be evidenced in writing to be subject to adjudication.
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Current legislation provides the default calculation for determining how much is due to a contractor or sub-contractor, but the both parties still have to wait for the calculation to be done.
The Bill will set a default ensuring that the amount the contractor or sub-contractor asks to be paid will be the sum due unless the calculation is carried out on time.
The new legislation will also widen the scope of adjudication to ensure that it applies to all construction contracts. A considerable number of construction disputes are determined using adjudication and the new provision is expected to increase the number of contests determined under the statutory resolution mechanism.
Graham Jackson, Associate at Thorntons' Construction Law team, predicts that the changes will have a significant impact on the construction industry in Scotland.
He said: "The outlaw of pay-when-certified clauses, the application of a default amount to be paid and the wider scope of adjudication will all make it harder for companies to avoid paying sums that are actually due, with a significant increase in the number of disputes adjudicated likely.
"This will mean that firms on both ends of a contract will have to manage their cash flow effectively, but it could cause problems for those who innocently fail to adhere to correct payment procedures.
"These elements of the Bill are devolved issues and will require a legislative consent motion to apply in Scotland. However, the Scottish Government has indicated that it will support this."
(GK/JM)
