I have noted that the JCT contracts state that, subject to certain conditions, liquidated damages may be deducted from the final certificate (for example, Intermediate Form clause 2.7). Does this mean that damages cannot be deducted from interim certificates?
As a rule of thumb, under the JCT contracts, liquidated damages may be deducted from money due to you if you fail to do the job by the completion date – that is, the original date given in the contract (unless you had a valid reason for extending it, of course).
The "certain conditions" you mention are that a certificate must be issued by the architect – or, if it's a design-and-build job, the employer must issue a notice – confirming that the job won't be finished on time. As long as the employer has done its paperwork, it can require payment or deduct liquidated damages in any certificate, up until the final one.
In other words, the answer to your question is yes. And if the length of delay is a long one, the employer may ask you for an interim payment. The entitlement to liquidated damages and extensions of time can be reviewed after the job is finished, but before the issue of the final certificate or statement.
Your only defence to interim deductions is a practical one. If your client is considering whether to hammer you with liquidated damages, it will probably be aware that this won't make you too eager to complete the job. For this reason it may hold off until the works are completed. If it does this, it must still have served you with the default certificate or notice.
Non-completion and extensions of time
We are a property development company that awarded an IFC98 contract for residential development to a main contractor, which failed to complete the scheme on time and a so certificate of non-completion was issued. The main contractor then requested a two-month extension of time (without costs), which was granted. The certificate of non-completion was cancelled, an extension of time certificate was issued, but the contractor still failed to complete the works by the revised date. So, a new certificate of non-completion was issued and is still in force. The main contractor still has not completed the works and has now said it has run out of money and cannot complete.
It has requested a further four-month extension with costs, but has no grounds for an extension past the first revised date. Can it override its agreement to a no-cost extension? Can it be successful in obtaining a second extension of time when it is already under a non-completion notice? I presume I am now within my rights to end the contract under a seven-day notice and employ others to complete the work, subtracting these costs from the main contractor's retention.
It certainly appears that the contractor is failing to proceed regularly and diligently with the works. In these circumstances it is open to you to give notice under clause 7.2.1(b) stating this and requiring the contractor to remedy the position in the next 14 days. If that doesn't happen, you can give a further notice to end the contract. Thereafter, you are entitled to employ other firms to complete the job. Furthermore, the present contractor is not entitled to any payment until the works have been completed, an account taken, and it can be seen who owes who what.
Remember that whether or not a contractor is proceeding regularly and diligently is to be tested at the time you give your notice. In other words, if the contractor has requested an extension, you have to look at how it is doing, regardless of how poor it has been in the past. If it later transpires that the contractor was entitled to more time, and was doing its job properly at the time of your notice, that notice may be invalid and you will have terminated the employment wrongly.
A reasonable rate reduction?The quantity surveyor on our project wants to adjust the bill rate of roofing material from £175/m2 to £45/m2 under a JCT98 LA With Quantities form. First, she claims that the quantities have increased by a factor of 3.5, creating an economy of scale. Second, she claims that the bill rate included scaffolding, which she has since paid for separately. I say that the scaffolding was priced in the preliminaries, not in the rate. Can she adjust the rate?
According to clause 220.127.116.11 of that contract, if the approximate quantity is not a reasonably accurate forecast, the rate is to be used as the basis for valuation – which should include a fair allowance for the difference in quantity. The approximate quantity in this case was indeed not an accurate forecast, but she can’t decrease the rate by as much as she wants to – that would create the absurd situation of her paying less for 3.5 times more. Unfortunately, the burden of proof regarding the scaffolding rests with you. You have to prove that it was priced in the preliminaries. If you can do this, the rate for the roofing material will stay the same. However, if you can’t, the scaffold will be priced at the original rate of £175/m2, and so the extra scaffold she has paid for would count as part payment of the money due at this rate.
Berwin Leighton Paisner's legal aid team are partners John Wright, John Hughes D'Aeth and Terry Fleet. If you have a query for them, email email@example.com and we'll pass it on.