Problems with defective work, and even non-performance of work, are an all too familiar issue on construction projects. What can be done about it and how should it be done? One way is to withhold payment. Cash flow is important in the construction industry and there are few better incentives than stopping payment for defective work.
For the purposes of this blog post, we give a brief summary of three ways a party can seek to withhold payment.
1) Issue correct payment notices
Construction works are carried out pursuant to either agreed payment provisions or the Construction Act. Either way, the correct payment notices need to be given in relation to any works carried out. In the event that there is a disagreement over the value of works carried out the correct Payment Notice and/or Pay Less Notice should be given which sets out what is due and the basis on which that sum is calculated. If these notices are not given within the required time periods then there is a risk that any monies claimed under any given application for payment will be due and owing.
Where defective work exists, the paying party can rely on the defence of ‘abatement’. Here, the contract sum is reduced to a value which represents the value of work undertaken. When determining whether abatement applies then the seven principles set out in the case between Multiplex v Cleveland Bridge are very useful. One such principal is that abatement cannot apply in respect of professional services (e.g. architectural services).
If a party has not carried out certain services/work or has performed it so poorly that it is worthless then there is no obligation to pay for such services/work. The threshold for what constitutes poor performance is lower than you might expect. In a recent case, the employer was entitled to make a deduction from the sums being claimed as the consultant did not provide monthly cost reports which it was required to do under its appointment.
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 Multiplex v Cleveland Bridge  EWHC 1341 (TCC)
 William Clark Partnership Ltd v Dock St PCT Ltd  EWHC 2923 (TCC)