Payments under Building Contracts: it pays to be on time!

11 / 02 / 2016

It is fair to say that the payment regime under the Construction Act (the “Act”) is complicated. In the recent decision of Henia Investments Inc v Beck Interiors Ltd [2015] EWHC 2433 Technology and Construction Court (“TCC”), Mr Justice Akenhead acknowledged that the statutory requirements in the Act “have led to unnecessarily complex provisions, not least those dealing with the consequences of failure to comply with timing provisions”.

The Act requires every construction agreement to provide an adequate mechanism for determining what payments become due and when they should be paid. Once agreed, the payment provisions should be strictly complied with. Failure to do so increases the risk of a contractor suspending all or part of its works which in turn may interrupt the programme and have an impact on progress.

In Henia v Beck, the TCC found that the building contract contained an adequate payment mechanism (as required under the Act). The TCC also considered a series of contractor’s interim applications (one of which was issued six days late), the employer’s “pay less notices” (which need to be given if any deductions are to be made) and the employer’s ability to claim liquidated and ascertained damages.

It found that the parties had not followed the contractual requirements with any precision. Despite this, where the contractor fails to issue interim applications and the contract administrator fails to issue pay less notices, the court held that the employer is not precluded from claiming liquidated and ascertained damages in a subsequent pay-less notice.

The key points from the case are as follows:

  1. Applications for payment “must be clear and unambiguous that an application relating to a due date is being made”; and
  2. A pay less notice can be used not only for deducting liquidated damages but can also be used where the employer does not agree with the contract administrator’s valuation of the works.

So…

  • The practical advice is simple: contractors should follow the terms of the contract – to the date and to the letter. However, employers will welcome this decision as this gives them a second bite at the cherry if a contract administrator fails to issue an interim certificate in time.
  • This case is also an example of how quick and efficient the TCC can be. Henia’s claim was issued on 25 July; heard by the TCC on 10 August and the decision was delivered on 14 August. The total length of this case was 20 days which is quicker than adjudication (where an adjudicator is usually required to reach his decision within 28 days of service of the referral notice).