Interim Payments: why it pays to be on time

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and Implications

The Technology and Construction Court (TCC) recently considered whether interim applications for payment submitted prior to and after the dates set out in a building contract were valid in the case of Leeds City Council v Waco UK Limited [2015] EWCA Civ 407.

Background

The parties entered into a JCT Design and Build Contract, 2005 edition Revision 2, 2009 (the Contract) for certain works which reached practical completion on 28 March 2013. Up until practical completion, the contractor's interim applications for payment, due to be issued monthly on specified dates as set out in the Contract, were not issued strictly in accordance with the Contract (often a few days later than the dates set out in the Contract). The employer's agent ignored the "irregularities" and the employer paid the amounts due.

Post practical completion, pursuant to clause 4.9.2 of the Contract, the contractor was due to issue its applications for payment "at intervals of 2 months (unless otherwise agreed)". Again, the applications for payment submitted by the contractor were not strictly in accordance with the Contract, with some applications being issued early and some later than the dates set out in the Contract.

The issue before the TCC concerned a particular interim application for payment made post practical completion and six days before the contractual date. The employer did not issue a payment notice relating to that application and did not pay the contractor. The contractor sought enforcement proceedings once the employer failed to pay following an adjudicator's decision in the contractor's favour. The employer sought a declaration from the TCC that the early application for payment was not valid.

Decision

The TCC found in the employer's favour noting that:

• an application for interim payment "must state the financial position as at that date" and is to include the value of the works carried out by that date (clause 4.14 of the Contract). As the application was earlier than the valuation date, the application was invalid;
• the fact that the employer had paid another interim application for payment issued post practical completion but earlier than the date set out under the Contract did not amount to any form of implied representation that the employer and/or the employer's agent would waive a similar irregularity noting that the payment was for a nominal amount;
• as clause 4.10 of the Contract does not provide an express requirement for an application for interim payment to be served by any particular date, the TCC considered that the contractor was under an implied obligation to submit its application within "a reasonable time – that being a matter of a few days – after the application had been made: which means the date on which, by the terms of the [Contract], the application had to be made". This is on the basis that the employer does need an idea of when to expect such an interim application in order to consider and prepare any payment notice.
• the employer's agent had:

Practical considerations

Employers

Review the dates on which you receive interim applications for payment in order to ensure that a course of dealing as described above is not being established as this may ultimately affect the time in which you have to submit a payment notice or pay less notice.

Contractors

Note the consequences of failing to comply with the dates set out in the Contract. Whilst the application for payment was held to be invalid this does not prevent, on a valuation based contract such as the JCT Design and Build, the same works being valued in a subsequent interim application for payment if the initial application fails. Therefore, the effect of failing to comply will be largely to your cash flow as opposed to the ability to claim for the payment entirely.