Case Update – What if the Interim Payment Schedule Runs Out?

Grove Developments Limited v Balfour Beatty Regional Construction Limited

The Facts

Grove Developments Limited (GDL) awarded a £120 million design and build contract to Balfour Beatty (BB) to build a hotel and serviced apartments adjoining the O2 arena in London.

The Contract contained a schedule of 23 valuation and payment dates, which covered when interim applications and payments should be made. This covered the period between September 2013 and 22 July 2015 (intended practical completion). In fact, works continued past the intended completion date and in August 2015, BB submitted a further interim payment application (IA24).

BB stated it was making IA24 in accordance with the Scheme, which allows the contractor to apply for interim payment for works that are not covered by the Contract.

GDL rejected BB’s application, stating that BB could no longer request further payment until final payment after practical completion, because the Contract only allowed for 23 interim applications.

Payment Requirements, Interim Payments and the Scheme

The Construction Act provides a party with the right to payment via stage, interim or periodic payments for any work that has a duration of 45 days or longer. It also states that where a contract does not contain provisions for stage payments, the Scheme applies.

The question here was to what extent the Scheme can be used to ‘fill gaps’ left by the terms of the contract which contained some payment provisions, but which BB argued were inadequate as they did not cover the whole of the project.

Court Findings

The court ruled in favour of GDL stating that BB had no contractual right to apply for further interim payment. The court found a number of issues with BB’s position, including:

  1. The Scheme should not be imposed just because the schedule did not cover the entire period. This goes against the right of the parties to agree their own terms.
  2. There was no implied term that payments would continue – this was contrary to the express provisions of the contract.
  3. BB could not rely on an argument of estoppel just because GDL had continued to issue payment certificates. The court found this amounted to “a classic example ofan estoppel that is to be used as a sword rather than a shield

Furthermore, the court found that the fault was with BB for failing to negotiate protective terms in the Contract to cover what should happen to interim payment applications should the works extend beyond the initial completion date.

Impact

Application and payment dates have been the subject of many adjudications in recent years. As a result, agreed schedules of dates have become more common.

This decision could have far-reaching consequences for Contractors in terms of cash flow, if a project extends beyond the agreed schedule of dates. This seems particularly unfair if the delay was not caused by the Contractor.

Points to Note

  • Check the payment requirements in your contract and ensure there are protective terms should there be a delay.
  • At the outset, ensure flexible wording in the contract to cover any period of delay e.g. ‘instalments every 20th of the month’ rather than specific dates.
  • Alternatively, include a payment schedule that can be automatically extended until practical completion.

If your contract already includes a limited list of dates and does not include any of the above safeguards, try to get the Employer to agree to extend the dates ASAP.

 

A full transcript of the case can be read here.


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Disclaimer: This article is provided for information only and is not intended to provide legal advice. No reliance should be placed on the information contained herein.