The new Joint Contracts Tribunal suite may have missed a trick and even confused matters even further.
Over the last few months the Joint Contracts Tribunal has been publishing its new 2016 suite of standard-form contracts, including the design and build (D&B) contract in October.
Some of the major changes relate to the payment provision, including alterations to incorporate changes in support of the Construction Supply Chain Payments Charter, a common valuation date to apply through the whole contract chain where the JCT suite is used, and a new debt recovery clause.
Though these changes are welcomed, the JCT may have missed the opportunity to clarify key areas and may have even confused some issues further.
One such area is final account procedures. These provisions are some of the most important within the contract, since they represent the last chance for the parties to draw a line under the account and resolve all outstanding entitlements and liabilities.
Consequently, these are often the most contested and therefore need to be clear, consistent and definitive.
For construction contracts, the starting point is the payment requirement in the revised Construction Act (‘the act’), which stipulates that every contract shall contain an adequate mechanism for determining what amounts become due and when. Most commentators agree that this must include a provision for the payment notices discussed below.
Avid followers of construction case law will be aware of the notified sum requirement brought in during revisions to the act that arrived in 2011, which require a payment notice stipulating an amount payable (known as the notified sum).
Where this is to be issued by the paying party, the act recognises a need for a fall-back position in the form of a payee notice determining the notified sum in the absence of a payment notice, without which the payer can evade prompt payment following their own failure to issue the notices.
Since these revisions, notified sums have been hotly contested in the construction courts and at present there seems to be an agreement that, in respect of interim payments, notified sums will be final and conclusive in the absence of a valid pay less notice.
However, this is not necessarily the position in respect of final payments where notified amounts may be subject to challenge unless there are contract provisions that make the notified sum conclusive.
The JCT D&B contract seeks to introduce this conclusiveness into the final account process by requiring disagreements around the final account to be raised and determined early and finally.
Under the JCT provisions, the final payment mechanism requires a payment notice and a pay less notice with the latter determining what is payable, maintaining compliance with the act.
“The final account provisions are not clear, consistent or definitive and the new JCT has missed the opportunity to put the conclusive cart behind the payment mechanism horse”
Since there has to be a notified sum whether or not a payment or pay less notice is given, the JCT procedure effectively makes the final statement the required notified sum, which, again, seems compliant with the act. The problems arise when the aforementioned conclusive provisions are thrown into the mix.
The final statement provisions declare that a final statement is generated by the contractor or, by default, the employer, and either party may challenge the statement before the due date for payment. If not challenged, then the amount in the final statement conclusively becomes the final payment.
However, the first problem is that the final payment mechanism states that the amount payable is the sum in the pay less notice or, failing that, the payment notice and not the amount in the final statement.
It could be argued that the parties should simply put the conclusive amount in the payment or pay less notice, but the contract doesn’t stipulate this. This leads to a pressing question: what is the conclusive amount due – what is the notified sum?
Potentially, in practical rather than express terms, the payment notice regime may simply fall away where the amounts have become conclusive prior to their activation. However, the statement provisions are still a means of determining amounts due under the contract in their own right prior to and separate from the payment procedure.
Arguably, the final statement provisions have to be an adequate payment mechanism under the act, requiring a notice procedure which has seemingly fallen away.
In summary, the final account provisions are not clear, consistent or definitive and the new JCT has missed the opportunity to put the conclusive cart behind the payment mechanism horse.
Paul O’Kane is head of construction, infrastructure and projects at DWF