A recent case has demonstrated the danger for contractors of agreeing a payment schedule that does not address what will happen if the works extend beyond the expected completion date.
Employers and contractors frequently agree interim payments schedules under construction contracts.
In the recent case of Grove Developments Limited v Balfour Beatty Regional Construction Limited  EWHC 168 (TCC), the court considered whether the contractor could apply for further interim payments if the works extended beyond the dates set out in such a schedule.
Hotel at the O2
Grove Developments engaged Balfour Beatty to design and build a hotel and serviced apartments adjoining the O2 Arena for a contract worth more than £120m.
The works began in July 2013 with an intended completion date of 22 July 2015.
The parties agreed a schedule of 23 dates throughout the intended construction period on which valuations and interim payments would be made. The works continued beyond 22 July 2015 and Balfour Beatty issued a further payment application for more than £23m.
The court was asked to decide whether Balfour Beatty had a contractual right to make this interim application (or any subsequent application). This was particularly relevant, as Balfour Beatty had commenced an adjudication seeking payment of the full sum claimed on the basis that no valid payment notice of pay less notice had been served.
No right to further payments
The court held that parties may agree a schedule for interim payments which does not cover the whole period over which the works actually take place. Such a schedule would be compliant with the Construction Act.
“The court found that as the parties had failed to reach an agreement to extend the payment schedule, and Balfour Beatty had no contractual right to further interim payments”
To interpret the Construction Act as requiring interim payments for all work under a construction contract lasting 45 days or more would be a draconian restriction on the freedom of commercial parties to contract on terms of their choosing.
The court therefore found that as the parties had failed to reach an agreement to extend the payment schedule, Balfour Beatty had no contractual right to further interim payments.
Danger for contractors
It is common for parties to agree payment schedules that do not address what will happen if the works are extended beyond the expected completion date.
This decision shows the dangers of this from a contractor’s perspective, as this could allow the employer to refuse to make further interim payments in the event of such delay.
Such a scenario could cause significant cashflow issues for contractors, especially when there is a long delay to the works. This is potentially very unfair for contractors if they are not responsible for such delay.
To avoid this, contractors should seek to include a mechanism in any such payment schedule that will set out the additional dates for interim payments if the works are extended.
Such a mechanism could simply state that, in the event of a delay beyond the expected completion date, further interim payments would be permitted on, for example, the last working day of the month.
James Worthington is a senior associate in the construction, engineering and projects team at Charles Russell Speechlys