Adjudicating the true value of an interim payment

Everyone in the construction industry should know that it is vitally important for parties to contracts to serve the correct notices relating to interim and final payments.

A party wanting to be paid must serve its application. The party paying must serve a payment notice and/or a payless notice. These must all be served at the correct time and in the correct form. If these notices are not served, there can be disastrous consequences with one party having to pay the other monies that it may feel are not due.

The problem has been further compounded by the decision of the Technology and Construction Court in the case of ISG Construction Limited v Seevic College. The paying party, Seevic College, had not served either a payment notice or a payless notice in the correct form or at the correct time. It was held that it had to pay the sum claimed by the contractor.

Furthermore, it was held that Seevic College was not able to commence an adjudication to decide the correct value of the application. They were deemed to have accepted the value in ISG’s application until the final account process.

However, this case looks to have been overturned so that paying parties would have the chance to value an interim application even if a payment notice or payless notice has not been served. In the case of Grove Developments Limited v S&T (UK) Limited the interim account in question was served just after practical completion and the amount payable on the application would have been about £14 million; an adjudicator had held that a payless notice was not valid and therefore the amount claimed by the contractor was due.

A number of points were decided in this case. However, one of the most useful for paying parties will be that if you fail to value an application and serve either a payment notice or a payless notice you would still be able to challenge the actual value of the interim application. The amount applied for would still be the amount that would be payable and the party expecting payment would still be able to refer that dispute to adjudication and be successful. The paying party would have to make payment.

However, the paying party would then also be able to commence an adjudication to actually value the account. An adjudicator would have to go through all of the representations and value the works. In such circumstances, it may well be that the value of the interim application would be considerably lower and therefore the paying party would only have to pay the reduced sum.

This is a considerable change in the law. It means that employers and other paying parties have, in effect, a third opportunity to challenge interim applications.

If you would like any more information on this topic or would like to discuss this further please do not hesitate to contact me on 01245 453813 or alternatively you can email me at [email protected].