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Rowan Turrall
Rowan Turrall,
SENIOR ASSOCIATE - SOLICITOR
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Beware the potential pitfalls of payment schedules
20 October 2016

The recent case of Balfour Beatty Regional Construction Ltd v Grove Developments Ltd [2016] is a salutary reminder of the issues parties to construction contracts can face when they seek to amend standard form contracts, particularly the payment provisions.

Background

Grove engaged Balfour Beatty to construct a hotel and serviced apartments at Greenwich Peninsular. The contract was a JCT Design and Build Contract 2011 with a number of amendments.

Initially the parties agreed that payment Alternative A (stage payments) was to apply and that they would agree the relevant stages within 2 weeks from the date of the contract. They were unable to agree what the stages should be and instead agreed a schedule of dates on which interim applications were to be submitted. The schedule also included headings and dates for “Valuation Date”, the “Grove Certificate Issued” and “Payment made by Grove”. There were 23 valuation dates included in the schedule which took the parties up to July 2015 - the anticipated contractual completion date.

By May 2015 it was clear the project was going to overrun so the parties tried to agree a new payment schedule. They both agreed that interim payments would continue but not the dates for applications, valuations and payments. After a number of months of dispute, Grove issued proceedings seeking a declaration that Balfour Beatty had no right to interim payments after July 2015, being the last date shown in the schedule.

Balfour Beatty sought to argue it was entitled to further interim payments on a number of grounds. However, the judge found in favour of Grove. Balfour Beatty appealed to the Court of Appeal. It sought to argue there should be an express or implied term for interim payments to be made after July 2015, Alternatively, the schedule did not comply with section 109 of the Housing Grants, Construction and Regeneration Act 1996 and so the Scheme applied which conferred a statutory right to interim payments. Finally it sought to argue that the parties conduct and correspondence gave rise to a fresh contract for interim payments from July 2015 onwards.

The appeal

By a 2:1 majority the Court of Appeal found in favour of Grove.

Giving the leading judgment Lord Justice Jackson rejected all three grounds of appeal. In particular:

  • He concluded that the parties had used express words to agree a payment regime. That agreement did not make provision for payments after July 2015.
  • As far as an implied term was concerned he thought the case fell short of what was required to imply a term that payments would continue. It was not obvious what the term would say, it was not necessary for business efficacy and the contract did not lack commercial common sense without it.
  • Under section 109 for contracts over 45 days a party is entitled to instalment, stage or periodic payments “for any work”. Balfour Beatty sought to argue this meant “all” work and that the relevant provisions of the Scheme should apply as the contract failed to provide a regime of interim payments covering the whole of the work. Lord Justice Jackson rejected this line of argument concluding that the parties had agreed a regime for interim payments which satisfied the requirements of section 109. In this context “any work” did not mean “every single piece of work”.
  • Lastly, he found there was no agreement regarding further interim payments. The parties did not agree dates for valuations, notices and payments, all of which both parties had treated as essential elements of any contract.

Comment

As a result of the decision Balfour Beatty will receive full payment for its work but only after the final payment date as defined in the contract. Here the work was delayed overall by nearly a year. A company the size of Balfour Beatty has been able to weather the storm caused by its inability to seek interim payments during this period. However, if smaller companies find themselves in the same position it could spell financial disaster. The decision therefore serves as an important reminder to ensure that if using payment schedules, the parties ensure the contract makes suitable provision for contract overruns.

For more information about the issues raised in this article or to find out more about how the Construction team can help you please contact Rowan Turrall on 0118 952 7206 or email [email protected].

Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.

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