Here’s a case that shows up the sheer muddle that is the Construction Act’s payment rules. They need to be rewritten - only not by those who made such a mess of it on the first two attempts

Tony Bingham

Every player on stage in this dispute knows his onions when it comes to the payment rules in the Construction Act. The solicitors know their stuff, the barristers know their stuff, the adjudicators on each of the adjudications know their stuff. No one on stage is an amateur. So how come they all make a bee-line for the High Court to argue about those payment rules in this case? Damn it, they have been in force for five years. Ah, well now, expert construction lawyers in all that time have been trying to fathom what those rules mean. And there is a whisper that sometime in the near future those who decide what goes into acts of parliament such as the Construction Act will review the whole rigmarole. So, can the people who put the payment rules into our midst in 2011 kindly go to work on Brexit or unlawful pole dancing – or anything else, please? We need payment rules that are easy to understand.

The first adjudicator in this ordinary joinery subcontract dispute at the posh Dorchester Hotel, Park Lane, got it right. He was asked by joiner Rob Purton to order payment to him because his customer Kilker Projects had failed to follow the payment rules. Kilker boobed by not sending a payment notice and further boobed by not sending a payless notice – all to do with Rob Purton’s final account. He got his £147,223, simply because of failing to pipe up after a fight to enforce in the High Court. According to some, this is called “smash and grab” adjudication. I don’t. I call it “pipe up or pay up” adjudication. All Kilker had to do, but didn’t, was serve a killer blow piece of paper at the time sums were due to trump what Rob Purton said he was due.

Kilker was miffed. Their boob overpaid the joinery man, they said, and, given this is a technical rule about want of a piece of paper and having to cough up, Kilker might be right. Snag! The adjudicator had of course decided what cash balance was due on the final account. So where does Kilker go to get the money re-paid if there was an overpayment?

Deal with actual final, final sum, in a measured, detailed, carefully thought through analysis. It’s not a crash bang wallop payments regime

Kilker’s lawyers came for a second adjudication. And this time a different adjudicator was told by Purton’s lawyers that the first adjudicator had well and truly decided the sums due and that’s that – so go away. Their opponent’s lawyers begged to differ. They said they could argue for an actual valuation, a true analysis of the final account – meaning the value of work done, variations, loss and expense, the kitchen sink. The adjudicator refused to leave the stage, said he had the right to “properly” value the final account, and 28 days later firmly decided that the joinery man had been overpaid in the first adjudication. Rob Purton had to repay £55,676. So the scene was set for another ding-dong in the High Court because Purton’s top quality lawyers who have done oodles of Construction Act payment disputes said the second adjudicator had no authority to revise that final account. And they were jolly well entitled to read the clumsy rules in that way. Mind you, it does feel a smidgeon hard line to nail down a final account sum by way of the want of a piece of paper. This would be a triumph of technicality over common sense. And so it was not to be such a triumph, said the highly qualified judge.

Look, if you can bear it, take a look at the bit of the act governing payments for construction contracts. The thing is best tackled by putting interim accounts and payments in one pigeonhole, and putting final accounts in another. So let’s talk about interim accounts. For anyone who has been a quantity surveyor, the approach each month is to make an approximation of work done. The builder says, “I have done three miles of stoneware draining plus bends and wiggles – shall we say about 75% of the value?” The paying QS looks, sniffs and says, “Shall we say half a mile and 50%?” And if last month’s drainage money was up or down, it would be corrected in next month’s re-run. This dancing around is only about cash flow. Subject to the contract, an interim is not about the actual value; it’s about a rough lump of cash to keep an even keel.

The final account is still about cash flow, and about true valuation. Call what you do first an interim payment “on account” for the final account. Then deal with actual final, final sum, in a measured, detailed, carefully thought through analysis. It’s not a crash bang wallop payments regime. It’s no good having a “pipe up and pay up” regime at this wrap-up time.

And so it was for the joinery man and his customer: the court tidied up some thinking.

The final account can be firecracker pace for cash flow purposes via an adjudicator, then later the actual value can be adjudicated. The folk who designed the original payment rules for the Construction Act beginning in 1998 and lasting until 2011, got that all wrong. The second attempt in 2011 was all wrong too. It is very, very hard making something simple. Perhaps we need simple people at the top. Is that you?

Tony Bingham is a barrister and arbitrator at 3 Paper Buildings, Temple