I have a small refurbishment company. We are working on a JCT minor works contract, and we find ourselves in dispute with client and architect. The architect has levied a four-week liquidated and ascertained damage clause, a) prior to contract completion, and b) despite issuing 62 new instructions. He has extended the contract by two weeks to accommodate these. We feel the issuance of the instructions has a sequencing effect that is not accounted in his estimations. Also, the client has paid outside of agreed timescale. Can we suspend the contract while we negotiate these damages? Could we terminated contract if we fail to agree?
Clause 4.8 of the JCT Agreement for Minor Building Works 1998 allows a contractor to suspend works if an employer's fails to pay on an agreed contract payment date. This is also reflected in the Construction Act.
The conditions for this are that:
- The contractor must first serve written notice to the employer (with a copy also sent to the architect) outlining the failure to pay and allowing a seven-day grace period
- No payment must have been received before the final due date for that payment.
If these conditions are met, works can be suspended until full payment is received, but works must resume on payment. A risk to the contractor arises where the client has paid the due amount (albeit late) by the time notice is served, ending the contractor's right to suspend the works. A contractor suspending works in these circumstances, or any other circumstances, would be a terminable breach of the contract and should not be done.
When an architect issues instructions, these should be given at such times and in such a manner as not to hinder or prevent the contractor from performing his duties under the contract. Clause 2.2 of the JCT form requires a contractor to notify the architect that the works will not be completed by the agreed time if it becomes apparent that factors beyond the contractor's control have caused this.
The architect then has a duty to act reasonably in deciding an extension of time. The architect should carry out a logical analysis of the importance that the relevant matters had or were likely to have on the contractor's programme. In this case, the contractor could argue that a two-week extension period was unreasonable given the large number of instructions given.
The client could lose his right to claim liquidated damages for non-completion to time if he has played a part in the delay and this rule could apply even though the contractor has by his own delays disabled himself from completing by the due date.
The contractor should first issue the required notice concerning late payment to the client and wait for the seven-day period to pass. If no payment is made by then, the works can be validly suspended. The contract should not be terminated as serious consequences can flow from such an act, and it is often unclear whether termination is justified.
The prudent way forward would be to try to persuade the client and architect that his concerns about the insufficient extension of time granted by the architect are valid. A commercial agreement might be achieved this way.
Postscript
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