NEC ECC: Option A - Interest due on Late Payment

Process to date:
We the Contractor have previously submitted our applications on time and in accordance with the assessment date noted within the Contract Data. The PM issues the Payment Certificate in accordance with C51.2 (and the Contract Data). The Employer has often missed the due date and we have been paid late (sometimes 60 days after the Contract required date). We have continuously raised EW and even CE’s with regards to the outstanding payments to assist. Once the Payment has been received we then notify the PM through the Programme submissions of the date payment was due and date payment was received so they can correct the Payment Certificate in the next period with the applicable interest as per C51.3.

To date, the PM has not corrected the next Payment Certificate to account for the interest owed on the previous. My query is to whether we are entitled to interEst on the interest amount (compound interest) as per C51.4. The PQS is noting that interest can only be applicable on a certified value and since there has been no interest added to the Payment Certificates interest on the interest amount is not owed?

For information the interest on some payments has not been paid for over 2 years and the interest on the interest amount is now substantial.

Interest is assessed from the date the payment should have been made until the date the payment was actually made. As you say, the PM should include this amount in the next payment assessment, although they clearly haven’t.

Your situation does seem extreme, but the question is what can you do about the PM default, under the contract? The suspension right under Y(UK)2 is restricted to amounts due, which correspond with a valid payment notice, although I assume that interest hasn’t actually been included on a payment notice.

Outside of the contract there is a legislative remedy in the form of the Late Payment of Commercial Debts (Interest) Act 1998, as amended by subsequent legislation. This allows you to charge a fixed amount in relation to the size of the debt and to also charge interest on the qualifying debt, which I believe is 8% above the Bank of England base rate. There is also the right to recover costs of debt recovery but I believe this is related to SME’s.

As NEC contracts don’t specifically provide a mechanism for what happens in your situation I suggest you also pursue matters through this route, which creates a further debt (original interest amount under the contract and a 'statutory amount ’ under the above legislation). Calculate what you should be owed as a ‘statutory amount’ and notify the Employer directly, indicating that the amount is subject to amendment the longer the ‘contract interest’ payment remains outstanding.