What happens when a project overruns and you run beyond the interim payment dates set out in your construction contract? Will the contractor be entitled to further interim payments or does it have to wait until the final date for payment, which could be months away?

Where an interim payment schedule runs out, you might think that the Court would imply further dates into the schedule, particularly as the Construction Act[1] states that every construction contract shall provide an adequate mechanism for determining interim payments, and when they should be made. Implying further dates would also make commercial sense, as otherwise a contractor could find itself without payment for months due to an overrun that may not even be its own fault.

Unfortunately, the courts do not take such a sympathetic view. As we highlighted in one of our blogs earlier this year, the Technology and Construction Court (TCC) refused to imply further interim payment dates into a construction contract where the interim payment dates had run out (because they ran beyond the original Practical Completion date)[2].

Understandably, the contractor in that case, Balfour Beatty, was so aggrieved by the decision that it appealed it to the Court of Appeal. The Court of Appeal has now made its decision[3] and the news is no better from a contractor’s point of view.

Like the TCC, the Court of Appeal refused to imply further interim payment dates into the contract. Its reasoning was as follows:

  1. Further interim payment dates were not necessary to give ‘business efficacy’ to the contract (the test for implying terms). There had already been 23 interim payments made and the contractor could wait until the final payment date for the balance of the payments – even if that meant waiting for months;
  2. The payment provisions under the Construction Act 1996 were not applicable either because they only kick in when the contractual mechanism is inadequate. Here, the contractual mechanism was adequate (as it provided for 23 interim applications) and the fact that it did not provide for interim applications beyond that did not make it inadequate; and
  3. It was not possible to interpret the contract to include further interim payment provisions, because a court can only do so when the provisions are ambiguous. In this case, they were perfectly clear – the entitlement to interim applications ended after application 23.

Conclusion

The parties originally agreed to the interim payment provisions under Alternative A of the JCT Design and Build Contract 2011. However, they failed to complete the list of stages under Alternative A and instead agreed to make interim payments in accordance with a schedule. That was the schedule that provided for 23 interim applications only and nothing beyond.

If the parties had stuck with Alternative A, then the contractor would not have found itself in this position, as Alternative A provides for payments after various milestones, up to the end of the Rectification Period.

If parties are going to use the own bespoke interim payment schedules, then they should ensure that those schedules include a provision for extending the payment dates to cover the actual duration of the works, including any over-run.

 This post was edited by Will Cursham. For more information email blogs@gateleyplc.com

[1] Sections 109 and 110 Housing Grants, Construction and Regeneration Act 1996

[2] Grove Developments v Balfour Beatty Regional Construction Limited [2016] EWHC 168 (TCC)

[3] Balfour Beatty Regional Construction Limited v Grove Developments [2016] EWCA Civ 990


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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.