are starting to charge interest under cls 51.2 on NEC3 short sub contract due to late payments / non payments we are currently experiencing from our main contractor client.
How are the charges for interest treated - are these included within the monthly valuations.
Are they subject to retention?
Do we include the interest portion on the value of the vat element which is overdue
As works are finished and completed and we have left site.
The main contractor has issued ourselves with a statement of their version of the full and final account statement which does not include any of the interest charged previously accrued to date and does not state how the current ongoing interest charges are going to be dealt with on current outstanding payments.
Can we recover the cost of adjudication from the Client if we have to use this route to enforce the interest charges for late and non payments.
Under clause 50.2 interest would be covered by the second bullet point “plus other amounts to be paid to the Subcontractor”, so yes you can include it in your application for payment.
Under X16.1 retention is only deducted from the Price for Work Done to Date which is also the first bullet point under clause 50.2 therefore it is not deducted from interest or any other amounts to be paid or retained from the Subcontractor.
Under clause 50.2 any taxes are included in the amount due and VAT will be applied after you have assessed what this is, as such you will automatically recover the VAT on interest.
NEC3 contracts do not contain a final account procedure however it would be normal practice for a final account statement to include everything that the Subcontractor is entitled to i.e. it should include the interest. It is acceptable if it states that the final amount due excludes VAT.
If the Contractor has still not paid all outstanding amounts and if they have a track record of paying you late then you’re not really in a position to sign the final account statement.
If you adjudicate it is the adjudicator who decides how to allocate fees and expenses between the Parties under clause W2.3(8) so it’s a bit of a lottery as to whether or not you would recover everything you spent.
Just to add to Neil’s good answer, interest is not classed as ‘consideration for a supply’ so is outside the scope of VAT, in the same way that ‘compensatory’ type payments would be, such as delay damages.
Great point Andrew, thank you for clarifying.