Where to from here: what to do when an interim payment schedule runs out

A recent TCC decision has considered a contractor’s entitlement to interim payments where dates in an agreed payment schedule had been exhausted prior to practical completion. Such situations are reasonably common in practice with parties often agreeing to extend payment cycles until practical completion. The present decision finds that there is no automatic right to extend a payment schedule in this way and no entitlement to additional interim payments arose beyond the last date in the payment schedule in this case.

Grove Developments Ltd v Balfour Beatty Regional Construction Limited

Grove Developments Ltd ("GDL") and Balfour Beatty Regional Construction Limited ("BB") entered into a JCT Design and Build Contract, 2011 edition, containing a series of bespoke amendments. One of those amendments was an agreed schedule of 23 interim valuation and payment dates, the last of which coincided with the Date for Completion of the Works as defined in the contract.

Those 23 dates came and went along with the corresponding interim applications, valuations and payments. The Date for Completion of the Works (22 July 2015) also came and went yet the works were not, in fact, complete.

On 21 August 2015, BB issued a further interim application ("IA24") to GDL which was then followed by a series of communications between parties as to the correct mechanism for dealing with future interim payments given that the payment schedule did not extend beyond the original Date for Completion. No agreement could be reached and the TCC was ultimately asked to decide whether or not BB had a contractual right to make IA24 (or any subsequent application) prior to practical completion.

No entitlement to further interim payments

Unfortunately for BB, the court held that it was not entitled to further interim payments beyond those particular interim payments set out in the schedule to the contract, despite the fact that the works were not complete. It rejected an argument that it was commercially sensible to imply a term into the contract to this effect given that it was open to BB at the outset to negotiate and provide for the possibility of delay.

As a fallback position, BB argued that the absence of any right to make interim payment applications between the last date in the payment schedule and the actual date of practical completion would be contrary to the requirement for stage payments in s.109 of the Housing Grants Construction and Regeneration Act 1996. BB argued that the payment provisions of the Scheme for Construction Contracts 1998 should "fill the gap".

The court disagreed with BB’s position and noted that s.109 sets a very low bar in terms of the amount and frequency of stage payments required under a construction contract. In this respect, the court approved of the following passage from Keating on Construction Contracts:

"… there is no requirement as to when such payments are to be made; any arrangement which satisfies the definition will be sufficient. Thus a contract prescribing one periodic payment, even of an insignificant amount, would it seems, meet the requirements."

Conclusions and implications

This is a strict approach to a situation which is not uncommon in construction projects. An appeal has been lodged by BB and will be heard by the Court of Appeal in the middle of this year. In the meantime, the court’s decision may result in parties refusing to agree extended payment schedules in circumstances where they would not have otherwise taken the point.

The decision highlights once again the importance of fully anticipating all circumstances that may affect a project and ensuring that appropriate protection is in place. Projects are often delayed with completion dates being missed, yet works will still need to be carried out and contractors (and their sub-contractors and supply chain) will still want to be paid. To avoid potentially serious cashflow issues, if a bespoke schedule of fixed payment dates is being negotiated, parties should ensure that adequate consideration is given to what happens in the event that works continue beyond the last date noted in the schedule. A simple formula such as naming the date of the month for payments would suffice.

References: Grove Developments Ltd v Balfour Beatty Regional Construction Ltd [2016] EWHC 168 (TCC)