Under most construction contracts, the contractor takes on the ground conditions risk. However, a recent case has demonstrated that the risk can fall on the employer.
In Jawaby Property Investment v Interiors Group** the Employer had asked for a “valuation” 3 days before the date on which an interim payment application had to be made under the contract. The Contractor sent through a spreadsheet the day before the “interim application date”. The court refused to regard this “valuation” as a valid application for payment, saying that a payment application had to be “in substance, form and intent an interim application”.
Asking for a “valuation” just before the interim application date is a common approach to cashflow planning. However, many Contractors (and Employers) have assumed that providing this is all the Contractor needs to do in order to apply for payment.
The importance of getting applications for payment right comes from the fact that, if the Employer (or the Client Representative/Contract Administrator – depending on who the contract says is responsible for issuing the “Construction Act” payment notice) doesn’t issue a payment notice, the application for payment becomes the payment notice.
The Employer must then pay the full amount stated in the application for payment unless the Employer serves a “pay less notice” in time (stating the amount the Employer thinks should be paid when they serve the notice and the basis on which that amount is calculated).
Case law is now clear therefore that, in order to be a valid payment application under the Construction Act, an application must:
- clearly be a payment application (and not just, for example, a spreadsheet or “valuation” listing prices or costs for work done);
- be clear about the due date to which it relates (ideally the due date should be stated in it);
- not be made early or substantially late – unless the Employer has agreed to this; and
- state clearly and unambiguously the total amount due and basis of calculation.
There is no problem with asking for a “valuation” in advance of the application. The problem is thinking that this “valuation” is the application.
*Housing Grants, Construction and Regeneration Act 1996 as amended by the Local Democracy, Economic Development and Construction Act 2011
**Jawaby Property Investment Ltd v (1) Interiors Group Ltd (2) Andrew Stephan George Black  EWHC 557 (TCC)
For more information
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