I am a contractor appointing a professional team, some of whom are insisting on being paid a percentage fee of the contract sum under the building contract. They are also insisting on being paid on a monthly basis until their fees are paid in full. Is this sensible? Can you suggest an alternative approach?
Many professionals do insist that they are paid a percentage fee by monthly installments. This sort of payment regime poses problems for the employer of that professional.
The biggest problem with agreeing to pay a percentage fee is that if the building contract sum increases, the professional's fee will, too. The preferable option from the employer's point of view is to pay the professional a lump-sum fee. This fee is fixed and provides you, as employer, with more cost certainty.
In relation to fee installments being paid monthly this can also be problematic. Professionals prefer to be paid monthly as it provides them with better cash flow and that helps their liquidity. The problem is that if there is an extension of time under the building contract it is feasible that the professional may be fully paid for his or her services before they are complete.
This leads to the obvious problem of the professional having little incentive to complete the services properly. Where possible it is important to link the payment of installments to stages of the building contract or stages of the professionals' services. It is more likely that the professionals will then work properly until the end of the project.
When is a decision not a decision?
If an adjudicator's decision is held to be unenforceable, can the dispute be readjudicated?
A dispute that is the subject of an adjudication cannot usually be readjudicated. Whether this is true of a decision that has been held by a court to be unenforceable is a moot point. One reasonable approach is as follows.
First, a decision in which the adjudicator acted outside their jurisdiction is void. Therefore, a decision was never actually reached and the case can be adjudicated again, possibly using the same adjudicator.
The second case is when an adjudicator reaches a decision by means that go against natural justice. A breach of the rules of natural justice can be acting in excess of jurisdiction, which would make any decision they came to void. However, not all breaches of the rules will take the adjudicator outside of his jurisdiction so as to render the decision void. In this instance the decision will be "voidable".
When a decision is voidable it is valid until set aside by a court. Therefore, as a procedural step, a party would have to apply to a court to have it set aside. It is likely, of course, that one of the parties will invoke this right since the dispute that gave rise to the adjudication will not have been resolved.
Moving the goalposts
Having tendered a scheme in January using JCT98, the project began in April with a contract period of about 60 weeks. The main contractor is claiming for the costs of the introduction of the aggregates levy. Shouldn't he have included these costs in the tender? He must have known that the tax was to be introduced.
The aggregates levy was introduced by the Finance Act 2001, which came into force on 11 May 2001. However, it only applies to aggregates exploited after 6 April 2002. Since the contractor's tender was submitted in January we assume that the base date for the purposes of the contract will also be around January 2002 – that is, before the levy first became payable.
On that basis, the answer to the question depends entirely on whether the JCT fluctuations clauses apply to the contract. If clause 38 (contribution, levy and tax fluctuations) or clause 39 (labour and materials cost and tax fluctuations) apply, the contractor will be entitled to an adjustment of the contract sum on the basis that the levy is "a new type of tax" that "becomes payable … after the base date". If clause 40 (price adjustment) applies then the effect of the levy will be reflected in the relevant formulas and will inevitably result in a price adjustment. On the other hand, if it has been stated that the sum is fixed and not subject to fluctuations then the contractor will not be entitled to any price adjustment.
The assertion that the contractor "ought to have included" for the effects of the levy seems reasonable, since it has been widely publicised. However, the wording of the JCT contract will operate in the contractor's favour unless the fluctuation provisions have been deleted and a fixed-price provision inserted in their place.
Postscript
Got a question?
Berwin Leighton Paisner's legal aid team are (above,left to right) partners John Wright, John Hughes D'Aeth and Terry Fleet. If you have a query for them, email eleanor_cochrane@buildergroup.co.uk and we'll pass it on.
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