The design-and-build contract is structured to allow the contractor to apply for payment either at certain defined stages or at specified times, usually once a month. The applications have to be accompanied by whatever details are asked for in the employer's requirements.
That's all pretty simple, but the dreaded payment provisions of the Construction Act 1996 also have to be considered. These were added as an overlay across the top of the JCT contracts when the act came into operation, and they leave a slightly clumsy procedure in their wake. What they say is that within five days of the receipt of the contractor's application for payment, the employer must set out in writing how much will be paid and how it has been calculated. This amount then has to be paid no later than 14 days after the receipt of the contractor's application.
There is then a further stage when the employer's agent can give written notice that money will be deducted from the amount due, for example for liquidated damages. The notice must specify the amount to be deducted and the reason for the deduction. To be effective, it must be issued five days or more before payment is due.
The danger is that an adjudicator could find that a payment application was made and you failed to follow the contract
So there are two chances for a response to the contractor's application for payment. The first is an opportunity to revise the amount due and the second is a chance to say that something will be deducted. The critical point is that if neither of these notices is given, the contract says that the employer has to pay whatever the contractor asked for.
Normally, the contractor's application for payment sets the QS the task of valuing the amount due. There are, however, some circumstances when it is not clear whether a financial submission from the contractor is actually meant to be an application for payment. For example, the contractor may make a claim for disruption in preparation for the final account negotiation game. In this situation, the QS may assume that the contract timescale for applications does not have to be followed.
The danger here is that a swift referral to adjudication could find that an application has been made, that the employer's agent has failed to follow the contract requirements, and that the relevant notices have not been issued. The amount applied for therefore is due under the contract, and the contractor is awarded the money. Although this result could be revised in the final account settlement process and the money ultimately recovered, the employer is still in the position of handing over money that is not actually due.
Andrew Hemsley is managing director of consulting at Cyril Sweett and can be reached on 020-7242 9777 or at email@example.com.