It should be difficult to overpay on an interim payment but when it does occur, should there be an express term providing for repayment?

Peter Hibberd

In his article “Eyes Wide Shut” (2 April 2015, page 43), Tony Bingham refers to Galliford Try vs Estura, a case concerning summary judgment to enforce the decision of an adjudicator as to payment of an interim application. It discusses whether the payer has a right to repayment by the contractor on account of overpayment and speculates whether there should be an express term to this effect.

JCT Design and Build 2011 makes it clear that the contractor shall make an application to the employer for each interim payment and when such application may be made. The due date is the later of the date for completion of the stage/specified date (whichever option applies) and the date of receipt of the contractor’s application. It determines the final date for payment, the date by which the payment notice is issued, and the date by which any pay less notice must be issued. It is also clear that, where the employer fails to give both notices, then the amount stated in the contractor’s interim application becomes the amount due and payable. In that situation it does not matter whether or not the amount set out in the application is accurate (ISG Construction vs Seevic College). Does this mean that where there is an overpayment on an interim payment there is a need for an express term providing for repayment?

There are two opportunities to avoid paying an amount stated in a contractor’s interim application with which one disagrees. Missing both opportunities should be a rare event

Firstly, the employer can prevent the operation of the default mechanism by issuing either a payment notice or a pay less notice within the stipulated timescales. There are two opportunities to avoid paying an amount stated in a contractor’s interim application with which one disagrees. Missing both opportunities should be a rare event. The main reason why this might arise is one of uncertainty as to when the contractor’s application is made. My article “Establishing Communication” (20 February 2015, page 48-49), made the point that a communications protocol was necessary to ensure that it was known that an application for payment had been made. It should provide the trigger to issue a payment notice and any pay less notice that may be required. 

Payment that arises as a consequence of the default position should be few in number but what of those payments that do arise? The contract states that the sum due as an interim payment is the gross valuation less the aggregate of any retention that may be held, the cumulative total of any advance payment that has become due and the amounts paid in previous interim payments. That means for each interim payment a new calculation is made. Any over assessment or error in calculation of the previous payment would then become adjusted in a subsequent interim payment unless the same error arises. It also means that any over payment that has been made by making a payment in excess of that which would have been made had a payment notice or pay less notice been correctly issued would also be adjusted.

Mr Justice Edwards-Stuart in Galliford Try vs Estura said there is nothing to prevent the employer challenging the value of the work on the next application, even if he is contending for a figure that is lower than the (unchallenged) amount stated in the previous application. Therefore, except for relatively few cases, the amount of any over payment will be recovered through the interim payment process. There is of course the possibility of an overpayment arising towards the end of the interim payment process or a significant overpayment which cannot be so recovered: however, the contract makes express provision for the possibility of repayment at final account stage. Furthermore, as stated in Rupert Morgan Building Services (LLC) Ltd v David Jervis & Harriett Jervis, the payer can otherwise raise the matter by way of adjudication, arbitration or legal proceedings. This would of course mean a delay in recovery or indeed the possibility that the contractor becomes insolvent in the meantime.  

All contracts are reliant on parties using proper procedures to comply with the terms of their contract and this is particularly important in terms of payment. It is frequently appropriate for a contract to provide for what happens in the event of failure to comply but it is accepted that it is not appropriate to try to cover every “what-if” situation. In that regard, an express term for repayment during the interim payment stage to cover a situation that should only apply in rare circumstances would add little, if anything, to the existing processes.

I think payment provisions within JCT Design and Build 2011 get the balance right and provide a sound legal framework within which to operate.  

Peter Hibberd is the past chair of the Joint Contracts Tribunal