The concept of "pay now, argue later," introduced by Robert Fenwick Elliott, was devised to address the challenges of cash flow and dispute resolution in long-term construction projects. The idea led to the establishment of a statutory adjudication process under the Construction Act 1996, with a goal of expedited, temporary resolution to ensure ongoing project funding, subject to later court review if necessary.
This adjudication process involves a strict 28-day timeline to resolve disputes and resume financial flow, extendable under certain circumstances. However, by 2023-24, a Kings College London report highlighted significant issues with this system, such as extended delay periods and high costs, often leading to situations more akin to 'pay late, argue even later.' These delays and disputes can critically impact the viability and completion of construction projects, especially given the industry's narrow profit margins.
To counter these challenges, construction escrow accounts have been proposed as a more effective solution. These accounts involve depositing an agreed amount into an independent, ring-fenced account at the project's start. If the employer fails to make timely payments, the contractor can access funds from this account, ensuring uninterrupted cash flow and project progression. This approach not only reduces the likelihood of adjudication but also lowers the overall cost of dispute resolution.
Furthermore, the presence of an escrow account can reduce the risk factor usually included in contractors' tenders, as it provides a more reliable guarantee of payment. Companies like dospay offer these escrow account services in the UK, catering to various project sizes and complex employer structures. The introduction of construction escrow accounts represents a significant shift in managing financial risks and disputes in the construction industry, aiming to maintain project momentum and financial stability.
