JCT and NEC compared There are significant differences in the timescales for withholding in JCT and NEC Contracts. To help understand some of these differences we have prepared flow charts for the following:
JCT 2005 SBC/Q Revision 2 2009 SBC Sub/A and SBC Sub/C Revision 2 2009 NEC3 Subcontract
These are on the reverse side of this Newsletter. You must be careful to check for any amendments to the Standard Forms which have been used as a basis for this illustration.
The new Construction Contracts Bill or to give it its full name “The Local Democracy, Economic Development and Construction Bill”, an updated version of the HGCR Act (1996), is likely to come into force this year.
What’s new in the new Bill? – amongst other things...
The Act will now apply to contracts agreed in writing or orally
Adjudication Costs—any attempt to allocate the costs of Adjudication between the parties will be invalid
Conditional payment—ban “pay when certified” clauses
The payment provisions specifically relating to withholding will be fundamentally changed.
A practical guide to defending withholding notices: Provided that a party to a contract issues a compliant withholding notice setting out the ground or grounds and the sums attributable to each ground then the party may legitimately withhold.
So what can you do to defend that position?
Technical Challenge:
Are the provisions of the contract compliant with the HGCR Act?
Is the notice to withhold compliant with the contractual requirements?
Is the notice to withhold compliant with the timing requirements?
Is the notice to withhold compliant with the means of issue? (e.g. recorded delivery post?)
Contractual Entitlement Challenge:
What is the cause (breach) of the contract giving entitlement to withhold?
Is there a loss naturally flowing from that breach? Quantum Challenge:
Is the valuation of the withholding prepared correctly and/or in accordance with the contract?
Is the evidential material fully auditable and relevant?
Do the costs claimed/presented naturally relate and flow from the alleged breach?
Have the quantities been properly calculated?
Are the rates and prices fair and reasonable? Are the reference points correct?
Withholding Notices - what level of information is required The law is clear in that a party cannot withhold a payment of a sum due after the final date for payment, unless it has issued an effective notice of intention to withhold, as provided by s111 of the HGCR Act 1996. The extent of the guidance provided by the Act as to the level of detail required in an effective withholding notice is provided at s111 (2). This simply states that the notice must specify— (a) the amount proposed to be withheld and the ground for withholding payment; or (b) if there is more than one ground, each ground and the amount attributable to it.
Neither the Act, nor any decisions in the courts provide specific guidance or clarity as to what will constitute an effective withholding notice and how it should be drafted. The courts have “stressed the need for clarity” when withholding money against interim payments, in order to promote confidence in cash flow, as intended by s111 of the Act. An example of the approach of the courts can be found in Aedas Architects Ltd v Skanska Construction UK Ltd. The Judge in this case stated that “The contract demands attribution to each ground. It does not ask for any apportionments and in my view it is a competent way to proceed by debiting all sums. The Statute speaking of “each ground” says attribution “to it” must take place. In my view that also is what the counter notice has done. All the grounds which can be calculated have so been and a global figure debited. In my view that is compliance.” Here the Judge distinguishes between attribution and apportionment. So... the Act requires attribution to each ground but does not require apportionment. It follows on this view that a “global” sum could be attributed to all grounds in the withholding notice without being apportioned.
In conclusion, when drafting a withholding notice, as a safeguard it is important to set out the grounds and the amount attributable to each ground. To avoid the possibility of a withholding notice being challenged on this basis, it would be prudent to apportion and attribute where necessary. The position with such notices will change (probably this year) with the new Construction Contracts Bill (see above).
WITHHOLDING PAYMENT UNDER JCT AND NEC CONTRACTS
Sheffield : 0114 230 1329
Belper : 01773 599 299
www.ramskillmartin.co.uk
NEWSLETTER - JANUARY 2011
WITHHOLD
INGPA
YMEN
TUNDER
JCTANDNEC
CONTR
ACT
S.
JCTStan
dard
BuildingCo
ntractwithQuan
tities
2005
(SBC/Q)–
Interim
Paym
entTimeLine
(upto
andinclud
ingPracticalCom
pletion)
7DAYS
JCTStan
dard
BuildingSu
bCo
ntract20
05(SBCsub/Aan
dSB
CSub/C)
–Interim
Paym
entTimeLine
(upto
andinclud
ingPracticalCom
pletion)
NEC
3Subcon
tractCo
ntractorto
SubcontractorPa
ymen
tTimeline
SubCo
ntractor’sCo
mmen
cemen
ton
site.(Clause
4.9.1)
FinalD
ateforpaym
ent(Clause4.9.3)
Due
date.(Clause
4.9.1and4.9.2)
Due
date.Dateforissueof
interim
certificate
unde
rmain
contractor
nolaterthan
one
mon
th. (Clause
4.9.1and4.9.2)
NOTLA
TERTH
AN
5DAYS
As4.9.1or
nolaterthan
onemon
th
NOTLA
TERTH
AN5DAYS
ContractorsGrossValuation
.(Clause4.13
)Co
ntractor
shallgivewritten
notice
toSubCo
ntractor
specifyingthe
amou
ntof
paym
entprop
osed
tobe
made.(Clause4.10
.2)
Contractor
may
give
written
notice
toSub
Contractor
specifyingtheam
ount
prop
osed
tobe
withh
eld.(Clause4.10
.3)
SubCo
ntractor
may
subm
itpaym
ent
application.
Contractor
certifies
amou
ntof
paym
ent
Contractor
assesses
amou
ntdu
e.(Clause50
.2)
Ifno
programmeisaccepted
then
25%
ofam
ount
dueisretained
.(Clause
50.3)
Contractor
makes
paym
entof
amou
ntdu
e.(Clause51
.2)
Themetho
dof
assessmen
tof
theam
ount
dueisde
pend
enton
which
MainOptioncontractapplies.
OptionA:A
mou
ntdu
eisPrices
from
completed
activitysche
dule.
OptionC:
Priceforworkdo
neto
date
isactualbase
costof
workdo
necalculated
usingtheSche
duleof
CostCo
mpo
nentsplus
theapprop
riatefees.
2WEEKS
21DAYS
Employer’swritten
notice
toCo
ntractor
ofprop
osed
paym
ent.(Clause4.9)
App
licationby
Contractor
mon
thly
orothe
rwise.(Clause4.12
)Architect/Adm
inistrator
toissueInterim
Certificatesto
Contractor
statingthe
amou
ntdu
e(asstated
intheParticularsbu
tno
texceed
ingon
emon
th).(Clause4.9)
Employer
may
give
written
notice
tothe
Contractor
specifyingtheam
ount
prop
osed
tobe
withh
eld.(Clause4.13
.4)
14da
ysfrom
theda
teof
issueof
that
Interim
Certificate
Employer’swritten
notice
toCo
ntractor
ofprop
osed
paym
ent.(Clause4.9)
NOTLA
TERTH
AN5DAYS
NOTLA
TERTH
AN5DAYS
Contractor
may
subm
itInterim
App
licationno
tlaterthan
7days
before
theissueof
theInterim
Certificate. (Clause
4.12
)
7DAYS
FinalD
ateforpaym
ent
(Clause4.13
.1)
Due
Date.
(ClauseY(UK)2.2)
Assessm
entDateas
perCo
ntract
DataPartOne
andno
tgreater
than
5weeks
apart.
2WEEKS
Contractor
may
give
written
notice
toSub
Contractor
specifyingtheam
ount
prop
osed
tobe
withh
eld.(ClauseY(UK)2.3)
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