This week’s Wise Up Wednesday is a bit longer than usual, but please stick with it, because getting this wrong could kill off your business!
If you’ve agreed a schedule of interim payment dates, but the works continue beyond the last date in the schedule – will you still carry on getting paid?
Balfour Beatty thought so, but let’s see how they got on.
Quick Fact Check
Grove developments (GDL) employed Balfour Beatty (“BB”) to design and construct a hotel and serviced apartments under a JCT Design and Build Contract 2011 with bespoke amendments.
The Date for Completion was 22 July 2015.
In the contract “Option A – Stage Payments” was selected, but the space to insert a brief description was left blank, and the words “To be agreed within 2 weeks from date of contract” inserted.
Stage payments were not agreed. Instead, the parties agreed a schedule of 23 valuation and payment dates, which covered the period to July 2015.
What Happened Next?
On 21 August 2015 (after the expiry of the final date in the Schedule), BB issued a further application for interim payment for £23million (“IA24”).
Yes, you read it right £23 million!
On 28 August 2015, GDL served a Payment Notice and then on 15 September 2015 it issued a Pay Less Notice for the sum of £440,000, which it paid on 18 September 2015.
Ouch, that’s quite a bit less…
Time to get serious
BB argued that in the absence of any further dates in the Schedule, the correct approach was to revert to the terms of the JCT contract and the Housing Grants, Construction and Regeneration Act 1996 (the “Act”) and the Scheme for Construction Contracts (the “Scheme”).
BB argued that GDL’s Payment Notice and Pay Less Notice had both been given out of time.
BB started an adjudication on this basis and the adjudicator found in BB’s favour, deciding that GDL was to pay BB a further £2m on top of the £440,000 GDL had already paid.
Round 1 to BB…
The Fight Back!
GDL weren’t about to take this lying down…
GDL started court proceedings to obtain a declaration that BB had no contractual right to make any further claim for payment once the payment dates in the Schedule had expired.
Round 2 Goes To…
The Court said that “where the contract complies partially with the Act, the provisions of the Scheme only apply to the extent that the Parties have not already concluded binding contractual arrangements that can remain operative.”
And that; “It is for the parties to agree stage payments by reference to whatever stages and amounts they see fit.” For example, if the parties wish to agree a single stage payment during the course of a project, that is their choice.
The court added “the mere fact that the agreement does not provide for interim payments covering all of the work under the contract is no reason to import the provisions of the Scheme”.
Put simply, a contract that only provides for one interim payment, or in this case, 23 interim payments, will comply with the Act even if there are periods during which the contractor is doing work and not receiving interim payments.
Out For The Count!
Did BB have a contractual right to make and to be paid in respect of IA24 or any subsequent interim application?
The court stated “the parties’ agreement was clear and provided for 23 interim payments on the dates set out in the agreed Schedule and no more…
BB tried various different arguments – well you would wouldn’t you for £23 million!
But the court rejected all BB’s arguments, stating that it would have been foreseeable that the works might be delayed and the payment dates could expire. It was a mistake on BB’s part that they had failed to negotiate payment terms which would protect them against the risk of the works overrunning.
In conclusion, the court found that BB had no contractual right to make or be paid in respect of IA 24, or indeed any subsequent application for the remainder of the works!
The Moral Of The Story?
This case demonstrates that if you agree to a payment schedule in your contract, it is essential to make provision for what will happen if the dates in the schedule expire.
Failure to do so may well result in you having no further entitlement to interim payment at all.
And that could have disastrous consequences for your cash-flow!
The best way to overcome this risk is to agree a schedule of dates which continues far beyond when the works might be expected to complete. Alternatively, very clear wording needs to be added to the payment schedule to explain how further interim payments are to be calculated if the stated payment dates expire.
Needless to say that this is yet another angle that the unscrupulous Contractors will seek to exploit!
Take action to safeguard your business from the catastrophic impact of reduced, late, or non-payment in 2016.
If you don’t then it could cost you your business!
Unscrupulous Contractors use every trick in the book, to reduce and delay payments. Specialist Contractor’s efforts to avoid or rectify this problem often come too late in the process.
Don’t be one of the casualties, take action now.
Download “How To Get Paid” for free right now, and put an end to reduced, late and non-payment!
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I hope you enjoyed my Wise Up Wednesday and that it gave you some food for thought, and please don’t hesitate to grab your Free Report at “How To Get Paid” and if you need any help with any of your business problems pick up the phone and give us a call on 01773 712116.