As fee recovery becomes an increasingly important issue for firms, senior partner at Beale & Company Solicitors Antony Smith gives some practical advice on how to ensure your company gets paid.
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It is an unfortunate side effect of the current financial climate that firms are finding fee recovery increasingly challenging. But there are a range of options available for companies seeking to recover payments.
The first step is to consider the economics of pursuing the monies. Some firms already have a fee recovery strategy in place which balances the internal and external costs of recovery as against the likely percentage recoverable.
For those that do not it is a relatively simple checklist; factors to consider include the value of the outstanding fee; whether contractual entitlement can be shown; whether supporting documents are available to prove the fee; whether there is an agreed dispute resolution mechanism and commercial considerations relating to the client.
One of the key things to assess is the reason for non-payment, as this can determine the actions that can be taken. If there is no dispute over the outstanding amount then a Statutory Demand can be a powerful weapon.
“Written construction contracts always allow for adjudication and the advantages are that you control the timing of it, and it is quick.”
This is a formal payment order threatening insolvency proceedings if not satisfied. It does not require court proceedings to start the process but it is an extremely aggressive ultimatum which is likely to be suitable only where client relations have broken down irretrievably.
For this to work it helps to do some groundwork. Try to obtain confirmation of the amount and that non-payment is not due to a problem with the service provided. A simple email can achieve this.
But in many cases the fee claim will be disputed and for these the last resort options − where other attempts to obtain payment have failed and where the value of the fees justifies legal action − are generally adjudication, litigation or arbitration.
Written construction contracts always allow for adjudication and the advantages are that you control the timing of it and it is quick − usually 28 days. The decision will be binding − unless and until a different decision is obtained in subsequent court proceedings − and payment will have to be made straightaway so the money is in your pocket.
However, costs can rise if the case is complex and these are not usually recoverable. While this can be a sting in the tail for the winning party, it ought equally to push the parties towards a settlement as the cost burden applies to both sides.
“Prevention is better than cure and agreeing a payment plan may be economically advantageous.”
For complex cases or for major sums then litigation in High Court is perhaps the best option. The Technology and Construction Court sees cases taken through efficiently and under close management. The decision will be sound and a cost order can be obtained.
Although it will usually be necessary to follow the Preaction Protocol for Construction and Engineering Disputes prior to pushing the button on litigation, in our experience this process often leads to early settlements with all the costs of litigation avoided.
Where a judgment against a debtor remains unpaid it can feel like the process has been a waste of time; however something to consider is a Third Party Debt Order, which can be effective if you know a third party owes your debtor money.
The claimant can bypass the debtor, so for example in the case of a contractor owing money to a consultant on a design build public sector project, the consultant can go direct to the public authority client to get payment diverted to him. This alone should force payment from the contractor not least because of the embarrassment ofexposure to the ultimate client.
Although there are clearly a number of options available prevention is better than cure and if agreement can be reached, perhaps by agreeing a discounted payment or payment plan, this may be economically advantageous in the long term.