Payment Provisions

MBM discusses Payment Provisions in light of recent case law decisions and offers some tips on how to navigate the complexities of Notices, content and deadlines.

Since the 2009 Local Democracy and Economic Development Construction Act (LDEDCA) introduced amendments to the Housing Grants and Construction Regeneration Act (The Act), there have been lots of disputes heading to the Courts as Contractors and Employers alike try and figure out how to make sense of the requirements for Notices and meet all the corresponding deadlines. The resulting case law has created even more complexity, so how can contractors ensure they recover the sums they’re entitled
to?
First of all, be thorough with the preparations and check your contract provisions and look out for the following areas: make sure your contract is compliant with the Act, it’s much easier than having to refer to The Scheme for missing or non-compliant provisions. Look out for frequency of payments and deadlines for Notices; once your negotiations are complete, it’s worth diarising these dates so you always know your position.

If you agree a Payment Schedule, make sure it makes provision for payments beyond the planned Completion Date. Balfour Beatty1 got a sharp shock last year when their project went into delay but the Employer refused to make any payments after the planned completion date because their agreed payment schedule ended at planned completion. The Court said Balfour’s had ample opportunity to make provision for these circumstances but had failed to do so and therefore Balfour, said the Court, would have to wait until Practical Completion, estimated to be a year away, before they could expect any more payments.

Be aware of the consequences of making amendments to Standard Form provisions and make sure they are carried through to any related provisions; for example, if the timetables for payments are amended, the timetables for payment notices need to be similarly amended. Secondly, make sure all your ducks are in a row when it comes to Applications; there are a series of cases from the last couple of years in which Contractors had their Applications denied. Last year, the Court denied Beck Interiors’ Application saying that it should be clear that an Application is being made in respect of a specific due date and in Caledonian v Mar City Developments the Court told Contractors that if they wanted to avail themselves of the general principle of payment in full in the absence of valid notices, they had to ensure that their paperwork was clear and unambiguous. Subsequent cases have elaborated on that principle in that items which are construction and non-construction operations, for the purposes of the HGCRA, should be separated on Applications.

Finally, if you’ve submitted your Application properly and the Employer has failed to pay and failed to issue a valid Pay Less Notice – setting out the basis of calculation and sum due to the Contractor, issued within the deadline – and you’re thinking of trotting off to Adjudication to enforce payment, be aware that it may not be that straightforward.

The Court recently decided two similar cases: Harding v Plaice3 and Seevic v ISG4. In each, the Contractor had issued their Application and the Employer had failed to issue a valid Pay Less Notice so the Contractors had gone off to Adjudication to seek payment of the sum of stated in their respective Applications. The Employers in each case then sought subsequent Adjudications, seeking to determine the sum due in accordance with a valuation of the works and the Court determined that in Harding, it was appropriate to seek a further adjudication but in Seevic, it was not.

In Harding, the Court held that the Adjudicator had determined the dispute based solely on whether a valid Pay Less Notice was issued and, finding that it was not issued, awarded payment of the notified sum to the Contractor. However, the contract stated that in circumstances of termination, as was the case, the sum due was in fact the amount properly due (as opposed to the notified sum) in respect of the account, an issue the Adjudicator had not dealt with and therefore the Employer was entitled to have the sum due determined at a further Adjudication.

In Seevic, the Court held the Employer was not entitled to a second adjudication because the Contactor’s Application was made in respect of an Interim Payment and therefore the Employer had the opportunity to deal with corrections in the subsequent payment cycle.

So, it seems possible to distinguish the apparently conflicting decisions on the facts; whether or not a further Adjudication can be sought may depend on the type of payment sought, the correct definition of the sum due and the point at which the payment falls during the project/ payment cycle.

Inevitably, checking your contract and understanding its provisions is the most important thing to remember and if in doubt, seek advice.