Timely Application, the Price of Failing to Comply?

construction law and dispute resolution

Timely application issued? If not, there could be trouble ahead.

A recent decision in the Technology and Construction Court (TCC) by Edwards-Stuart J in the case of Leeds City Council v Waco UK Limited [2015] EWHC 1400 should serve as a wake-up call for contractors in the trade who fail to recognise the importance of applying for interim payment on the exact contract date which has been agreed to. A timely application is of paramount importance.

This decision from the courts has the potential to influence the validity of interim payment applications sent on any date other than the exact date specified in the contract. Do you have a timely application or not?

Leeds City Council (LCC) contracted with Waco UK Limited (Waco) under an amended JCT Design and Build Contract 2005 (Rev 2 2009 edition) to carry out the design, manufacture and installation of new factory-assembled modular classroom buildings at Roundhay Primary School in Leeds.

This may seem nothing out of the ordinary, as detailed (and as some contractors regularly tell us – overtly complex) payment provisions are nothing new, however in practise how many contractors adhere to the exact contract date on which interim applications are to be submitted?

Whilst this may be a generalisation on our behalf, most contractors (like Waco in this instance) often submit their interim payment applications around the time period that the application is due in accordance with the contract, but more often than not this can be a couple of days early or similarly a couple of days late. In practise, it is very rare that the paperwork trail is accurate on a monthly basis to the exact specified date as stipulated in the contract.

Back to the case of LCC v Waco, where Waco submitted an interim application on 22nd  of September 2014 for the sum of nearly £500k, however this application was made and received a full six days before the bi-monthly required date as specified by clause 4.9.2 of the contract being the date of 28th of September 2014.

LCC in response didn’t serve a payment notice, or a pay less notice and did not make a payment. As one might expect, adjudication followed and Waco succeeded in this matter, and in due course a payment was made by LCC.

This matter was then taken to the Technology and Construction Court, where LCC submitted that there was never any entitlement under the contract provisions for applications for interim payments to be made on any dates other than those stipulated by the contract.

Edwards-Stuart J decided that an interim application was required to be made on the relevant date agreed, and had to include the total value of the work properly executed up to that date, and whilst a degree of flexibility was inferred from the parties conduct in terms of when a valid application could be submitted after the due date, the judge concluded that an application could not be made before the relevant due date – on the basis that an application made early could obviously not cover work between the date of the early application and the later valuation date.

But is this correct?

Don’t all contractors in the main when quantifying their work to date, work on an accrual basis of ‘projecting’ the amount of work to the end of the relevant period? – we think so, and it certainly makes sense to do so – but the moral of this story is that if you plan to rely on the opposing parties default in terms of a Payment Certificate or Pay Less Notices, then there can be no substitute for making those applications on the exact date that you agreed to make them on.

Applied for on any other date, and an application for payment may just find the decision of LCC v Waco to be a substantial hurdle.

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