Legal aid — This month our panel of experts locks horns with a client that has withdrawn an extension of time, sacked the architect and refuses to pay what’s due. Should the contractor down tools, lean on the new architect – or is adjudication the answer?
Our client has withdrawn an extension of time (EOT). We are a contractor that worked on a project worth £350,000. It was due to complete in October 2005, but for a variety of reasons it was delayed and did not complete until April 2006. The architect has issued an extension of time for the majority of the delay. The client disputes the EOT and has sacked the architect and is threatening to sue it. The client is now stopping liquidated and ascertained damages from our payments and will not pay our increased costs. It has employed another architect to withdraw the issued EOT and issue a certificate of non-completion. We were working to a JCT 98 Private with Quants. Where do we stand?
You could be entitled to suspend works
The extension of time has only been issued for the “majority” of the delay: accordingly, the architect considers you are responsible for the balance of the delay. Provided the architect has issued a notice of non-completion under clause 24 of the contract the client is entitled to deduct liquidated ascertained damages (LADs) from the date of the extended date for completion. This right is subject to the service of a valid withholding notice on behalf of the client. In brief the notice has to be served not later than five days before “the final date for payment” and must specify the amount being deducted from money otherwise due to you.
Whether or not the client disputes the present EOT, the contract provides that no person subsequently appointed to be the architect is entitled to disregard or overrule any decision or approval made by its predecessor. Therefore no new architect can withdraw the issued EOT nor can it issue any fresh notice of non-completion that relies on a completion date earlier than the date extended by the original EOT.
If any money properly due to you in respect of a certificate has not been paid by the final date for payment you could consider either suspending the works or determining your employment. In the case of suspension you can only do this if no valid withholding notice has been served and you have given seven days’ written notice to the client of your intention to suspend. In the case of determination you have to give 14 days’ notice. In addition, if the client does prevail upon the new architect to withdraw the EOT this would be an act of interference/ obstruction also entitling you to determine your employment. You can of course take any matter to an adjudicator at any time for him or her to determine your rights.
Julian Holloway, partner at Berwin Leighton Paisner
Write a strong letter to the architect
There is no point concerning yourself with the change of architect as it is entirely for the client to decide whether to change architects if it so wishes. While you do have a right to object within seven days it sounds as though you have missed this opportunity.
I would write to the new architect, remembering you are in a position of relative strength because of your greater knowledge of what happened during construction. The following should be covered in your letter:
- You are aware that the client may have a dispute with the original architect but you are confident that the new architect will recognise its responsibility to act independently and will not be unduly influenced by the client.
- That under the contract the original architect was responsible for giving a fair and reasonable extension of time and that you consider this is what it did. I would attach the written notice from the original architect granting the extension so the new architect can’t argue that it hasn’t seen it.
- The contract does not allow an architect to revise an EOT that has been granted, and that this applies to the new architect.
- That you have already made application to the previous architect that you have incurred loss and expense. Again resend the information with this letter.
Adjudicate on the simpler dispute
There are in JCT98 certain circumstances in which the architect can fix an earlier (or later) completion date than one already fixed by an EOT, but it is not clear whether the time within which it could do so has passed. The EOT could also be reviewed by an adjudicator or arbitrator.
A potentially much simpler dispute to take to adjudication would be whether the withholding of LADs by the employer is lawful. The employer would have to reimburse the LADs if the adjudicator’s decision were in the contractor’s favour.
As for increased costs, it is not clear whether these have been established as due. This would normally be a separate issue from those of the EOT and LADs.
The employer could sue its architect for loss that it suffers as a result of the EOT but would normally have to prove that the architect was negligent in granting it.
Rachel Barnes, partner with Beale & Company
Challenge the employer’s deductions
Although the architect is the agent of the employer, the employer has to accept that in matters to do with the administration of the contract it falls under a duty to act fairly. Interference by the employer preventing an architect from acting fairly in these matters will cause the employer to be in breach of contract. The employer, however, is not obliged to go along with the architect’s decisions if they are not exercised in accordance with the contractural requirements and procedures, which define the limits of its authority.
If this is simply a case of the employer not liking the granting of an extension of time, it will not be able to resolve the problem by simply replacing the architect with a more compliant one.
As has been pointed out elsewhere, the new architect is not entitled to disregard any certificate or decision given by the previous architect. So the decision of the first architect relating to the EOT would still stand.
The new architect is required to review extensions of time already granted. This must be done within 12 weeks of practical completion. As a result of such review the architect can fix a completion date that is earlier than the previously extended completion date. In the exercise of this power it is required to act fairly and reasonably.
The best course of action now is to go to adjudication. In referring your dispute you will challenge the deduction of the LADs. You should seek a decision on whether the extension of time granted by the original architect still stands. If so, the employer will have no right to deduct the LADs. Furthermore, when the LADs were deducted it would seem that a certificate of non-completion had not been issued. Without such certificate LADs cannot be deducted. Also, your employer might not have issued a notice of withholding required under section 111 of the Construction Act. In which case this will be an additional reason for challenging the deduction of the LADs.
Rudi Klein, chief executive of the Specialist Engineering Contractors Group
The only remedy is adjudication
This sounds as though it is going to get nasty. There are a number of preconditions to the deduction of LADs under JCT 98:
- A certificate of non-completion issued by the architect confirming that the contractor has failed to complete the works by the date for completion as extended by him.
- The employer must inform you in writing that he will deduct LADs. Has it done this?
- Finally, a set-off notice must be issued before the deduction is made, stating the amount to be withheld and the reason.
Under JCT 1998, the employer can terminate the architect’s appointment but must nominate another one within 21 days and must give the contractor the opportunity to object to the new firm. Were you given this opportunity? Did you object when you were notified of the replacement architect?
Plainly, if the new architect has not been appointed using the correct procedures, then any action by it is invalid. Even if correctly appointed, the new architect cannot simply rip up the existing extension of time. The only way in which the employer can challenge this is in an adjudication.
So you need to write to the employer disputing the deductions it has made in respect of LADs and stating in detail why you dispute them. If it continues to withhold sums due to you, then the only remedy is to issue an adjudication notice. From what you say, it seems hard to imagine that the adjudicator will not order the employer to pay to you the sums wrongly deducted.
Ann Minogue, partner at Linklaters
If you have a query, you can submit it via our website www.building.co.uk/legalaidform. Replies are based on information provided and it is essential you consult a solicitor before putting advice into action