Articles from the Silver Shemmings Ash Team on contractual matters, recent case law changes and items of interest in the construction and property world
April 5, 2019 | Silver Shemmings
The case of Balfour Beatty Regional Construction Limited v Grove Developments Ltd  EWCA 990 is frequently cited as authority for the proposition that if the parties to a construction contract have agreed a schedule of interim valuation dates, the payee cannot submit an application for interim payment once those dates have elapsed. Contractors (and subcontractors) would usually expect that they can apply for interim payments up to completion of their works, in order to maintain their cashflow.
The problem with a schedule of fixed interim valuation dates is that it may be drafted on the basis that practical completion will occur on the date for completion current at the time that the schedule is drafted. Therefore, if the schedule is inserted in the contract when it is signed, the schedule may only provide for interim valuation dates up to the Date for Completion stated in the contract. However, delays to construction projects almost invariably happen and therefore the dates in the schedule may elapse before practical completion of the works is achieved.
In the Balfour Beatty case, the parties entered into a construction contract that was based on the JCT Design and Build Contract 2011. The contract stated that Alternative A (i.e. stage payments) applied. Therefore, the applicable clause was Clause 4.8.2 which stated:
“Where Alternative A applies, an Interim Application shall be made as at completion of each stage specified in or by the Contract Particulars for Alternative A. Following the application in respect of the last stage, such applications shall be made at intervals of 2 months (unless otherwise agreed), the last such application being made upon the expiry of the Rectification Period or, if later, the issue of the Notice of Completion of Making Good…” (Our emphasis). Also, the contract stated that the stages were “to be agreed within 2 weeks from date of Contract”.
However, the parties were unable to agree the stages. Then, after a delay of six weeks after the date of the contract, the parties agreed a schedule of periodic payments, which was referred to in the case as the “Tumber schedule”, i.e. dates by which the contractor would apply for interim payment, and by which the employer would issue payment certificates and would make interim payments. The last such date for an application for payment to be submitted was 16 July 2015, whereas practical completion of the works occurred during December 2015.
If the parties had agreed to periodic payments before entering into the contract, it would have been appropriate to select Alternative B. When deciding to revert to periodic payments, the parties should have also agreed to substitute Alternative B for Alternative A but they didn’t do so.
If Alternative B had applied, then Clause 4.8.3 (rather than Clause 4.8.2) would have the applicable clause. Clause 4.8.3 states:
“Where Alternative B applies, for the period up to practical completion of the Works, Interim Applications shall be made as at the monthly dates specified in the Contract Particulars for Alternative B up to the date of practical completion or the specified date within one month thereafter. Subsequent Interim Applications shall be made at intervals of two months (unless otherwise agreed). The last such application being made upon the expiry of the Rectification Period or, if later, the issue of the Notice of Completion of Making Good ……” (Our emphasis).
If Alternative B had been selected then, notwithstanding that the dates in the schedule of valuation dates had elapsed, it would have perhaps been open to Balfour Beatty to argue, on the basis of Clause 4.8.3, that the parties intended interim payments to be made up to practical completion of the works (NB: Balfour Beatty wrote to Groves stating: “Despite efforts on both sides, no agreement has been reached in relation to the Interim payment process beyond July 2015.”)
Whilst schedules of valuation dates are frequently inserted in JCT contracts, it is far more common for Alternative B to be selected, rather than selecting Alternative A. Therefore, the situation in the Balfour Beatty case may not occur too frequently in practice.
The prudent course of action is to make sure that any schedule of valuation dates provides for interim payments right up to practical completion. One way of doing this is by including a rider at the end of the schedule such as “and thereafter monthly on the [first working day] of each month until the date of practical completion”.
Author Chidi Egbochue is a Partner with Silver Shemmings Ash and has over 10 years’ experience of providing primarily non-contentious advice on major construction projects across several sectors, including infrastructure, oil and gas and energy. He acted for High Speed Two (HS2) Limited on the new high speed rail network project and for TFL on the Northern Line Extension project and has extensive experience and knowledge of construction procurement and construction contracts, including NEC contracts as well as traditional forms such as JCT, FIDIC and LOGIC
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