The Final Account Procedure under the JCT Design and Build Contract

A recent TCC decision has considered two significant issues arising under the final account procedure of the JCT Design and Build Contract. First, whether a Notice of Completion of Making Good is required to trigger the final payment where no defects have been notified by the Employer. Second, whether the Employer need commence legal proceedings in addition to the giving of a notice of dispute in order to avoid the Contractor’s Final Statement from becoming conclusive under clause 1.8. The court’s conclusion on the second of these points means there is a significant difference between the final account procedure under the JCT Design and Build form in contrast to the JCT Standard Building Contract. Whilst the contract in question was the 2011 edition, the same terms apply in the current 2016 edition.

CC Construction Ltd v Mincione

Mr Mincione engaged CC Construction under an amended JCT 2011 Design and Build Contract (“JCT DB 2011”) to build the shell and core of a new house in Knightsbridge, London. Work started in April 2016 but was delayed and Mr Mincione took partial possession of the works on 7 December 2018. Practical completion of the remainder of the works was achieved on 15 November 2019.

Twelve months after practical completion, the Rectification Period ended. In December 2020, CC Construction sent a Final Statement to the Employer for £483,512.12. Mr Mincione disputed this sum by a letter later that month (the “Notice of Dispute”). On 13 January 2021, Mr Mincione issued a Notice of Completion of Making Good (“NCMG”) in respect of the final part of the works, having already issued a separate NCMG on 14 February 2020 in respect of the works which had been subject to partial possession. He subsequently served a Payment Notice on 10 February 2021 denying that any payment was due and that the account had been overpaid by £254,656.58.

Two key issues arose between the parties as to the status of CC Construction’s Final Statement:

• whether the Final Statement had triggered the due date for the final payment or whether the second NCMG from Mr Mincione in January 2021 was required - CC Construction argued that a second NCMG was not needed because no defects had been identified, nor any instructions given to rectify works, after practical completion had been achieved; and
• whether Mr Mincione had validly prevented the Final Statement from becoming conclusive by his Notice of Dispute or whether legal proceedings were required to be commenced for this purpose.

The dispute between the parties went to adjudication and subsequently came before the TCC on enforcement.

Is a Notice of Completion of Making Good required where there are no defects?

The service of a NCMG is one of three triggers for the calculation of the due date for the final payment under clause 4.12.5 of the JCT DB 2011 form (clause 4.24.5 in the 2016 edition). The other two triggers are the end of the Rectification Period (one year after practical completion in this case) and the date of submission of the Final Statement or the Employer’s Final Statement as the case may be – with the due date falling one month after whichever of those triggers is the last to occur.

Mr Mincione claimed that the due date was triggered only with the service of his NCMG on 13 January 2021. On that basis, his Payment Notice was within the contractual time frames. However, if CC Construction was correct and an NCMG was not needed to trigger the due date, the Payment Notice would be out of time, with the result that the amount of the Final Statement would be required to be paid by Mr Mincione without deduction under section 111 of the Construction Act.

The court found in favour of CC Construction, emphasising the contractual wording around the giving of a NCMG. Clause 2.36 provided for an NCMG to be issued when the defects which “the Employer has required to be made good” had been made good. Accordingly, where no defects had been notified, there was no requirement or ability to issue a NCMG.

Disputing the Final Statement: are proceedings necessary?

As in most JCT contracts, the Final Statement was to become conclusive in certain respects if steps were not taken to dispute it by Mr Mincione. CC Construction claimed that legal proceedings were required for this purpose in reliance on clause 1.8. That clause provided two ways for conclusivity to be avoided: (i) if legal proceedings (including adjudication) had been commenced before the due date for the final payment; or (ii) if such proceedings were commenced within 28 days after the due date (but in that case with conclusivity only suspended in respect of the matters to which those proceedings relate).

Mr Mincione relied on the Notice of Dispute and the terms of clause 4.12.6 (clause 4.24.6 in the 2016 edition), which was in unamended form as follows:

“Except to the extent that prior to the due date for the final payment the Employer gives notice to the Contractor disputing anything in the Final Statement …, and subject to clause 1.8.2, the [Final Statement] shall upon the due date become conclusive as to the sum due under clause 4.12.2 and have the further effects stated in clause 1.8.”

The court found that clause 4.12.6 did not create a two-step obligation but rather gave the Employer two options. The first being to provide notice disputing the Final Statement and the second being to issue legal proceedings. Therefore, Mr Mincione’s letter alone was sufficient notice. In reaching its conclusion, the court emphasised that CC Construction’s argument required the words “subject to clause 1.8.2” to be read as qualifying the whole of clause 4.12.6 whereas it considered the more natural reading to be that those words only qualified the second part of the clause. Accordingly, a failure to give notice disputing the Final Statement would still be subject to any suspension of conclusivity obtained under clause 1.8.2 through the commencement of legal proceedings.

Conclusions and implications

This case provides clarity as to two significant aspects of the final accounting process under this popular standard form. Employers should be aware that the due date for the final payment may arise sooner than they anticipate if no defects have been notified and accordingly a NCMG is not required. The failure to oppose a Final Statement before the due date, or to issue a valid payment notice within 5 days after the due date may result in the Final Statement becoming conclusive and/or a requirement for the Employer to pay the amount claimed in the Final Statement.

The court’s interpretation of clause 4.12.6 is of more assistance to Employers and means that in instances where they wish to oppose a Final Statement, they are not obliged to immediately bring proceedings, but can simply give notice of a dispute in respect of the Final Statement. The JCT Standard Building Contract does not have an equivalent provision and instead requires proceedings to be commenced in accordance with clause 1.8. This therefore marks an important difference in the final accounting procedure under the Design and Build form.

References: CC Construction Ltd v Mincione [2021] EWHC 2502 (TCC)