Introduction
Understanding how interest is applied to late and incorrect payments is essential for parties and dispute resolvers involved in NEC4 contracts. Respondents to the survey, conducted by the Centre for Construction Law & Dispute Resolution, indicated that late or incorrect payments continue to be central to the majority of disputes.[i] According to UK Government research published in 2024, the mean percentage of payments in the construction sector that were late was 18%.[ii] Other academic research suggests the position is much worse, particularly for subcontractors.[iii]
Claims for payment of interest can be complex and involve significant sums of money. In UK Grid & Amey v SHE Transmission (2024), a Scottish court held that the contractor was entitled to interest of £98,834, with further interest of £301.57 per day until the capital sum awarded by the court under the dispute was paid.
This article explores the provisions within both the NEC4 Engineering and Construction Contract (ECC) and the Engineering and Construction Short Contract (ECSC) that govern interest on overdue or corrected payments. Similar regimes apply to the main and subcontract long form versions of the Professional Service Contract, Term Service Contract, and Supply Contract.
NEC4 Engineering and Construction Contract (long form)
Late payment
Clause 51.2 governs the timing of certified payments. It states that each certified payment must be made within three weeks of the assessment date unless a different period is specifically stated in the Contract Data. If the UK Housing Grants, Construction and Regeneration Act 1996 (the Construction Act) applies, the final date for payment is fourteen days after the due date for payment unless a different period is stated in contract data.[iv]
If the payment is late because it was not made within the required period or because the project manager failed to issue a certificate that they should have issued, interest becomes payable on the overdue amount. The interest is calculated from the date the payment should have been made until the actual date it is paid.
Corrections to the amount due
Clause 51.3 extends the payment and interest principles of 51.2 to situations where a previously certified amount is later corrected. Corrections may occur due to a mistake, a compensation event, a delay in testing or inspection caused unnecessarily by the supervisor, or following a decision by the adjudicator, a tribunal, or a recommendation from the dispute avoidance board. The purpose of this clause is to ensure that a party is compensated not just for the delay in receiving the proper amount, but specifically for the delay that arose due to errors or procedural delays in certification. In these cases, if the previously certified amount is found to be incorrect and a new amount is certified, interest must be paid on the difference between the two amounts. This interest is assessed by the project manager from the date when the incorrect amount was originally certified until the date when the corrected amount is certified. The interest on the correcting amount is then included in the assessment that reflects the changed certification. This approach is different to that applied in clause 51.2 for late payments and is regarded as pragmatic as the project manager is not able to know when or even if the amount certified will be paid.
Assessing the amount of interest
Clause 51.4 explains how interest is assessed when it becomes payable under clauses 51.2 and 51.3. Interest is calculated on a daily basis at the interest rate stated in the contract data, applying the rules of simple interest with compound interest applied annually.
The interest rate in contract data is expressed as an agreed fixed annual percentage plus the base rate published by the bank specified in the contract. Typically in the UK, the base rate set by the Bank of England’s Monetary Policy Committee is specified. An example calculation for a late payment under the ECC is given below:
- Fixed rate of interest stated contract data part one = 3%
- Bank of England Base Rate (BoEBR) = 4%
- Interest rate to be applied (a) + (b) = 7% (0.07)
Payment due stated on payment certificate/notice of payment: £50,000
Final date for payment: 26 September 2025
Date payment received: 10 October 2025
Number of days payment was late: 14
Interest due = (£50,000 x 0.07 x 14)/365 = £134.25
Responsibility for certifying interest payments
It is the project manager’s responsibility to include any interest due to the contractor (or the client).[v] Amounts assessed by the project manager should be identified under bullet point 2 of clause 50.3, “plus other amounts to be paid to the contractor”, and be clearly set out in the relevant certificate complete with the appropriate calculations.
Setting the rate of interest in the ECC
The contract data template in the ECC, and other NEC4 long form contracts, state that the fixed rate portion of the interest rate agreed by the parties should not be less than 2%. However, the statement in contract data may be considered more as guidance than contractual, noting that changes to the contract data templates do not necessarily need to be supported by amendments to the conditions of contract.
Adding the BoEBR of 4%, as of 25 September 2025, equates to an interest rate of 6% per annum. In the UK, statutory interest is governed by the Late Payment of Commercial Debts (Interest) Act 1998. The Act applies to most contracts involving the supply of goods or services where both parties are acting in the course of a business. The statutory rate of interest is set by the Secretary of State and, at the time of writing, is 8% plus the BoEBR.
If the parties have not stated a rate of interest in the contract, the courts may impose the statutory rate. Where the parties have agreed a rate, the courts are unlikely to intervene unless the agreed rate does not constitute a “substantial remedy”, as defined by Section 9(1) of the Act.[vi] In 2024, the High Court held that an interest rate of 2% above the base rate in a subcontract, where the parties were deemed not to have equal bargaining power, was not a substantial remedy.[vii]
NEC4 Engineering and Construction Short Contract (short form)
Clause 51.2 of the NEC4 ECSC states that interest is payable on any late payment or on a payment that corrects an earlier underpayment. The interest calculation period starts on the original due date and ends on the actual payment date. The default interest rate is 0.5% of the delayed amount per whole week of delay, unless a different rate is specified in the contract data. A note in contract data states that the parties should only insert a rate if it is less than 0.5% per week of delay. Users should note that a rate of 0.5% per week amounts to an eye-watering 26% annual interest rate. It appears that the contract drafters assumed that this high rate would serve as a deterrent to late payment, or that even at this high rate, the assessed amounts would be minimal, based on the expectation that the short contract would generally be used for lower-value contracts. An example calculation for a late payment under the ECSC is given below:
- Default rate of interest stated in the client’s contract data: 0.5% per week of delay
- Payment due stated on payment certificate/notice of payment: £20,000
- Final date for payment: 26 September 2025
- Date payment received: 15 October 2025
- Number of complete weeks payment was late: 2
- Interest due = (£20,000 x 0.005 x 2) = £200
Conclusion
Interest provisions in NEC4 contracts serve as a financial deterrent against late or incorrect payments and aim to promote fair payment practices. The contracts establish clear mechanisms for calculating and certifying interest, with the approach differing slightly between the ECC and ECSC. With construction disputes frequently arising from payment issues and courts increasingly scrutinising agreed interest rates, it is critical for parties to set appropriate rates in the contract data and ensure proper certification of interest through the project manager or contract administrator.
David Hunter
September 2025
[i] 2022 Construction Adjudication in the United Kingdom:Tracing trends and guiding reform: Professessor Renato Nazziini & Aleksander Kaliisz: Centre of Construction Law & Dispute Resolution Kings College Cambridge in association with the Adjudication Society, October 2022
[ii] Department for Business & Trade: Late Payments Research Understanding Variations in Payment Performance and Practices across Business Sectors and Sizes, September 2024
[iii] Late payment to subcontractors in the construction industry: Sam Bolton, Gayan Wedawatta, Nadeeshani Wanigarathna, Chamindi Malalgoda, 2022.
[iv] Y(UK)2.2
[v] Interest may be due to the client if a previous assessment resulted in overpayment to the contractor (clause 51.1, 51.3)
[vi] Yuanda (UK) Co Ltd v WW Gear Construction Ltd [2010] EWHC 720 (TCC)
[vii] A & V Building Solution Ltd v J & B Hopkins Ltd [2024] EWHC 2295 (TCC)