A recent webinar held by Floris Pels Rijcken, Jarl van Sonsbeek, Reinier Pijls and Koen Roordink focused on the threats and prospects in the construction industry. In particular, dealing with bad payment behavior of clients was discussed. An interesting example discussed concerned the dispute between the installer and the developer of the Galaxy Tower in Utrecht, in which paragraph 43a (8) UAV 2012 played a crucial role.
This case highlights the importance of strict record-keeping and timely payments in the construction industry, while clients must ensure legitimate grounds for denial of payment in cases where work is not fully completed.
Section 43a paragraph 8 UAV 2012 - principal does not pay or does not pay on time
Section 43a paragraph 8 UAV 2012 allows contractors to demand security of payment and even suspend or terminate the work in case of non-payment. A recent Amsterdam court ruling confirms the force of this provision, in which the installer successfully suspended the work due to persistent payment delays and disagreement over delay costs.
How does this provision work?
This case involved a dispute between the installer and the developer of the building. That dispute is a good example of the power of paragraph 43a(8) UAV 2012. If the UAV 2012 was agreed to - and it was - it is a provision that allows the contractor to demand security from the client if:
- failure to pay (on time); or
- if the contractor has a well-founded fear that payment will not be made (on time).
If the contractor rightly requests this security and does not receive it, the contractor may suspend the work and in extreme cases even terminate it. So it is a very strong remedy and this ruling by the Amsterdam court shows that.
Amsterdam District Court ruling December 22, 2022
One of the topics was what to do in case of bad payment behavior of the client. This was an issue during the construction of the Galaxy Tower in Utrecht. The construction of that building, by the way, keeps people's minds busy at all. It regularly appears in the news and judgments about this building appear in the courts.
What preceded it?
In the construction of the Galaxy Tower, the general contractor's work has been severely delayed. Because of that delay, the general contractor is claiming compensation of tens of millions(!) of euros in delay damages. A lawsuit is pending with the developer about this.
Delay damages
Because the installer's work follows the work of the general contractor, the installer is also delayed in carrying out the work. The developer has stated that it will reimburse the cost of the installer's delay to the extent that it is due to the developer. But the two parties do not agree on the amount of those delay damages.
Appeal to section 43a (8) UAV 2012
Therefore, the installer requests security from the developer under Section 43a (8) UAV 2012. The latter declined. However, the developer is willing to pay an advance on the yet-to-be-determined fee. The developer has also paid the installer's invoices. A peculiarity here is that almost all of these invoices were paid late or much too late.
This is the state of the discussion and at that point the installer announces that he will suspend the work if additional security is not provided. In other words, a direct appeal is made to Section 43a paragraph 8 UAV 2012. As of November 21, 2022, the installer therefore suspends the work.
How does the judge rule?
The court blames the developer heavily for the fact that documents submitted showed that dozens of invoices were each time in arrears of at least hundreds of thousands of euros. It is therefore considered plausible that the developer regularly paid (much) too late. Furthermore, it is also plausible for the court that the delay and overrun of such a large and complex construction project will lead to many additional costs . Because of the increase in construction costs, this is another relevant issue. So in addition to the delay damages, construction cost increases will also have to be compensated.
Fear of payment delays in the future
The court also finds it plausible that the developer is under pressure because the general contractor has seized from its principals (in this case, investors) and that is negatively affecting the developer's liquidity position . This fuels the installer's fear that the developer will continue to fail to pay her (on time) and, perhaps, when the chips are down, offer no recourse.
Installer gets even
Taking all these considerations together, the court considers that the installer was right to invoke Section 43a (8) UAV 2012. This therefore means that the installer was justified in suspending the work . The developer's claim to restart the work is therefore rejected.
The installer is not required to move and restart work until security is provided in the amount of €7.5 million. This amount is arrived at on the basis of an estimate of delay damages brought into the proceedings by the installer combined with the additional costs due to the rising construction costs.
Powerful remedy
In short: this case shows that a contractor is not empty-handed if the UAV 2012 have been agreed upon and the client shows bad payment behavior. So be alert to that!
In our webinar, we also pointed out that strict record keeping is important for contractors. That way, you can monitor your client's payment behavior and prevent a claim from mounting too high. On the other hand, of course, for the principal, it is important to pay on time and, when payment is not made, to provide a legitimate reason .
After all, it may happen that payment of invoices is requested while there is a legitimate argument that the work is not yet or not completely finished and therefore there is no reason for payment yet.
Do you have any questions as a result of this article? Please contact one of our specialists Koen Roordink, Floris Pels Rijcken, Jarl van Sonsbeek or Reinier Pijls.
