Check, please

Last week, I told you how the JCT contract documents have blessed, beatified and anointed the architect's payment certificate. That humble piece of paper determines "the sum due" to the contractor. If the employer disagrees with its architect or wishes to deduct from that sum due, then another piece of paper, called a "withholding notice", has to wing its way to the contractor. But what's the score under that master of dispute documents, the JCT With Contractor's Design for design-and-build jobs? Under those rules there is no architect's certificate and the game becomes even more curious.

I have been talking about this with Paul Cowan, a barrister at White & Case in London. He is chairman of the JCT Construction Dispute Resolution Group and a JCT council member. He pointed me to a landmine. It is tucked away in a case called Watkin Jones & Sons Ltd vs Lidl UK (reported last year by Ashley Pigott, 3 May, page 48). Here, the contractor submitted its interim application to payment to the Lidl supermarket. It was then up to Lidl to pay. But Lidl wanted to hang on to some of that money. It doesn't matter why; the point is that when no architect's certificate machinery exists, the JCT contract anoints the contractor's application for payment as the sum due. If Lidl wanted to deduct, then a "withholding notice" had to be issued in time. So, even if the contractor's application is inflated (as if), it becomes the sum due.

Cowan has some suggestions about all this.

The first is, "Don't step on the landmine to begin with". He reckons that the anointing rules in the document can be de-fanged. He calls the present wording "draconian". Snag is that amending standard forms has several hidden effects: contractors' estimators begin to suffer from psychological problems. Clever amendments give estimating departments the collywobbles. In truth, the parties start eyeing each other with "contractual suspicion" even before they start the job.

OK, says Cowan, how else can an employer guard against a wrong interim account becoming undeniably payable? The obvious one is to pay very close attention to the amount claimed by the contractor in its application. The employer will rely heavily for this on the person it appoints under the contract, the employer's agent. This fellow must be on his toes and require his employer to issue "withholding notices" if there is a wrong claim in the contractor's application. I have seen war break out between the contractor and the employer's agent when the agent becomes overprotective towards the employer. I think I know why: he's worried about being blamed for an overpayment. He has a rotten job. He is partisan. Tempers become frayed. The project can go downhill.

Cowan has another idea. It may be that the contractor has not issued an "application for payment" at all. A proper application must follow the rules in the JCT document. He also spotted that if appendix 2 of the contract (which sets out how interims are to be made) is not completed then all the draconian machinery falls away. Also, he has spotted that an application made after practical completion has a legal quirk. It only allows an application from the contractor "when further amounts are due under the contract".

Cowan has spotted that if appendix 2 of the contract is not completed then all of the draconian machinery for payment falls away

He has cleverly seen that an application after practical completion can't be anointed in itself.

It has to actually reflect the true "amount due" using the payment rules in the document. All very complicated.

Cowan, though, hits a nail bang on the head when he talks moves on to fraud. He puts it nicely. Can one ask of the application, is it so inflated that it is merely a try-on? Does it constitute a claim for payment of sums known by the contractor not to be due. In this situation, he says, the employer might be able to argue that the application for payment is fraudulent and, as a result, cannot be an effective under the contract. Of course, the employer should make sure that it has clear and strong facts on its side before making such allegations. Put another way, if your application for payment is compiled by a cheat, if it deliberately contains untrue items, that's an attempt to steal, or obtain a pecuniary advantage as we lawyers say. And don't comfort yourself by saying "everyone does it". The same goes for an employer's agent who deliberately concocts a story so as to cheat on withholding money when no money should be withheld. We are talking about the border between commercial rough-and-tumble and prison.

Robin Ellis Ltd
A legal article (7 November 2003) referred to a High Court decision in Robin Ellis Ltd vs Vinexsa International Limited.

We have been asked to make it clear that the author did not intend to suggest that Robin Ellis Ltd, the builders in the case, had acted in an unconscionable manner in challenging a default notice served by their employers.