By Nita Mistry, K&L Gates, London
In Grove Developments Limited v Balfour Beatty Regional Construction Limited  EWHC 168 (TCC), the contract (JCT Design and Build Contract, 2011 edition with bespoke amendments) contained an agreed schedule of 23 interim valuation and payment dates. The last date in the schedule coincided with the date of practical completion. The works completed after the contractual date for completion of the works. The contractor issued an interim application number 24. This interim application was outside of the agreed payment schedule. The contract did not contain a provision regarding payment beyond the 23 scheduled payments. The employer argued that the contractor was not entitled to issue further applications beyond interim application 23, and the judge, Mr Justice Stuart-Smith, agreed. The contractor was not entitled to further interim payments.
The bespoke amendments, made by the parties in this case, are a departure from the position in the unamended JCT Design and Build Contract 2011. The unamended JCT Design and Build Contract 2011 requires an interim application to be issued “at completion of each stage”. Payment is therefore staged and triggered by progress of the works rather than fixed on a monthly basis in isolation of how the works progress.
The difficulty a contractor has if it (a) deviates from the provisions in the unamended JCT Design and Build Contract 2011 and (b) agrees to a specific schedule of interim applications and payments is that it has no contractual right to apply for further payments until the final payment mechanism is triggered. The final payment mechanism is usually triggered after the project has achieved practical completion and may therefore result in serious cash flow difficulties arising for the contractor.
The case provides an important lesson when negotiating payment mechanisms in the contract. If parties have agreed or agree to include a specific schedule of interim applications and payments in the contract, it is also necessary to provide for contract overruns. If the contract is already agreed upon, the contractor may want to consider renegotiating the payment terms and agreeing to a revised schedule with the employer. Otherwise, it will have to wait until the project has achieved practical completion before it can be paid.