Lord MacFadyen's decision in Maxi Construction Management vs Mortons Rolls [7 August 2001] underlines the need to use language that tracks the statutory payment timetable. Maxi failed to do this, and its action for payment was dismissed.
Maxi was a building contractor completing an extension to Mortons' factory in Glasgow. The contract administrator was Citex Bucknall Austin. Maxi sought payment for both tender variations and client instructions. Maxi said its application for payment was a relevant claim in terms of paragraph 12 of the scheme, and that since Mortons had not served a counter-notice under the act, they must pay.
The act provides that every contract must have an adequate mechanism for determining what payments become due, and when. Lord MacFadyen held that it was legitimate for a contract to provide for two procedural stages leading to payment. The first could require agreement on the amount of the valuation, as long as it contained deadlock provisions "as a means of resolving a failure to reach agreement". Only then is the second stage reached – the application for payment. In this case, there were no deadlock provisions, so the act and the scheme applied.
Lord MacFadyen's decision, though persuasive, is not binding on this point as the decision is based on his view of the efficacy of the application for payment. But if he is right, then it is open for an employer to postpone payment of an interim valuation until an arbitration has fixed the amount.
The formal basis of the decision revolves around the format of interim valuation number 10 and the wording of the covering letter that went with it. The contractors wrote in the following terms: "We now enclose our interim valuation number 10 as requested … We formally request that this is valued and certified in accordance with the terms of the contract." The valuation itself was in tabular form. It set out in the left-hand column a series of items and against them, in the right-hand column, their costs. It fell into a number of sections. The first dealt with the tendered works; the second was headed "Tender Variations" and set out nine items; the third section was headed "Variations/Contract Instructions" and had a list of 62 items, some of them additions and some of them deductions. Paragraph 12 of the scheme demands that a relevant application for payment must "specify … the basis on which it is calculated". No explanation of the basis of calculation of the sums arrived at under the second heading was provided. Major elements in the third section of the application for payment were also unexplained. For example, one item described as "complete revision and installation of drainage due to inaccurate 'as fitted' drawings" was reflected in a deduction of £35,500 from and an addition of £60,000 to, the contract sum. No further detail was provided.
Lord MacFadyen held that it would be quite unfair, given the terms of the covering letter that went with the interim valuation, to treat it as a claim for payment, as it was not presented as such at the time. He also held that the failure to provide an adequate basis for calculation was fatal. No relevant demand had been made and hence the timetable that leads inexorably to payment under the act and scheme had not even begun.
The case stands as a warning to contractors that they must change their systems to ensure that interim valuations are clearly built up.
Gone are the old days of a polite request to the contract administrator for certification. The covering letter should now make it clear that a demand for payment is being made.
While this is probably good news for contractors, Lord MacFadyen's suggestion that employers should be entitled to insist on arbitration on the proper amount payable before a relevant interim application is made under the act and scheme, may reintroduce the mischief the Construction Act was designed to cure.
John Stirling is a partner at solicitor Bennett & Robertson in Edinburgh.