There is little review over the provisions which have changed the payment regimes in the construction industry

Ryan Greening

With the enactment of the Local Democracy Economic Development and Construction Act 2009 over three and a half years ago, there is surprisingly little review over the provisions which have fundamentally changed the payment regimes in the construction industry.

It is hopefully widely known by now that the new Act has changed how the payment sum can be determined and what information is required within the payment notice and any pay less notice.

Turning first to how the payment notice operates. This notice requires the sum considered to be due to be specified along with the basis on which the sum is calculated. There is largely no difference here from the old Act.

However, where things start to become very different is section 110B(4) whereby if the payee (the person claiming) was required to submit an interim account prior to a due date, and the payer (the person paying) does not issue a compliant payment notice, then it is deemed that the payee has issued a default payment notice. The only way a payer can retrieve this situation is to issue a pay less notice, as otherwise the entire sum of that default notice is generally found to be due.

The pay less notice (previously a withholding notice) is now required to specify the sum that the payer considers to be due and the basis on which the sum is calculated. Previously a withholding notice had to specify the amount to be withheld and the ground or grounds for such withholding.

The first judgment that we saw was Matthew Harding (t/a M J Harding Contractors) vs Gary George Leslie Paice and Kim Springall (November 2014) which was issued in regards to the correct valuation of works at termination of the contractor’s employment. The particular provisions at issue concerned “the amount properly due in respect of the account”.

The project involved no less than four adjudications but the case only reviewed numbers three and four. In summary, the contractor made an application to value the works at termination to which no payment certificate or pay less notice was issued by the employer. In adjudication number three the contractor was awarded the amount of his application. The employer launched adjudication number four in order to determine the amount properly due and the contractor resisted on jurisdictional grounds. It was found that the provisions of termination are very different from the interim payment provisions and hence it was right for the sum properly due to be assessed by the adjudicator in number four.

The second judgment was ISG Construction Ltd vs Seevic College (December 2014) which found that under a JCT contract the absence of any payment notice and/or pay less notice by the employer amounted to acceptance of the value of the contractor’s interim application.

The third judgement was Galliford Try Building Ltd vs Esturan Ltd (February 2015) which largely affirmed the above decision of ISG. The judge stated “This means that the employer cannot bring a second adjudication to determine the value of the work at the valuation date of the interim application in question. But it does not mean any more. There is nothing to prevent the employer challenging the value of the work on the next application”.

In summary therefore, under the JCT contracts it appears that for interim applications without a payment notice and/or a pay less notice, the payer is obligated to pay the amount of the payees application. The situation is only different at termination (and presumably final account) whereby the provisions require an assessment of the amount properly due.

Ryan Greening is a director at Bennington Green