Our latest JCT 2016 Edition blog explains the new payment process in the JCT Minor Works Building Contract…
The interim payment process need not be difficult. Actually, it is quite straightforward under the JCT framework for payment, which complies with the requirements of legislation and reflects the fair payment charter.
An easy way to understand the process is to recognise that the Interim Valuation Date (a defined term in the contract), which also applies to JCT sub-contracts and sub-sub contracts, is the key factor in the contractual time framework.
At pre-contract stage it is necessary to state the first Interim Valuation Date and also the interval between Interim Valuation Dates and to insert these in the Contract Particulars. In arriving at what these should be, users should take note of the following:
- the employer’s internal payment processes;
- the first Interim Valuation Date should not be more than one month after the commencement date; and
- the intervals between Interim Valuation Dates should not be more than one month.
The Interim Valuation Date determines the due date for each interim payment which is the date 7 days after the relevant Interim Valuation Date (clause 4.3).
Payment of each interim payment must be made within 14 days from the due date of the interim payment (i.e. 21 days from the Interim Valuation Date).
That simple structure sets out the time framework but in order for a payment to be made it is necessary to certify the amount of each payment. The Architect/Contract Administrator shall within 5 days of the due date for each interim payment (i.e. 12 days from the Interim Valuation Date) do this by issuing an interim certificate.
The amount to be stated as due in the interim certificate is made up of the applicable percentage (e.g. 95%, as stated in the Contract Particulars at 4.3) of the value, as at the Interim Valuation Date, of:
- work properly executed etc. as clause 4.3.1; and
- materials and goods reasonably and properly on site as clause 4.3.2.
Both of these amounts are then adjusted for any fluctuations that are stated in the Contract Particulars (4.3 and 4.8) to apply and from that total amount the following are deducted:
- total of sums stated as due to the Contractor in previous interim certificates;
- any sums paid in respect of any payment notice given by the Contractor after the issue of the latest interim certificate;
- any amount deductible under clause 2.10 (2.11 in MWD) for defects not to be made good; and
- any amount deductible under clause 3.5 for non-compliance with instructions.
The resulting amount is that which is stated as due in the interim certificate. The amount stated as due must then be paid within 14 days from the due date of the interim payment unless the Employer issues a pay less notice in respect of that amount not later than 5 days before the final date for that payment. Where the Employer issues a pay less notice the payment due is not less than the amount stated in that notice.
Where the Architect/Contract Administrator fails to issue a certificate on time, or not at all, the process is different but nevertheless it is still straightforward. Where the Contractor has in relation to an interim payment made an application for payment, which it may do so not later than the Interim Valuation Date under clause 4.4.1, then this application becomes a payment notice (4.4.2.1) and is treated in much the same way as a certificate, had one been issued.
If the Contractor has not made an application under clause 4.4.1 then under clause 4.4.2.2 it may do so at any time after the latest date for issuing the relevant certificate (i.e. after expiry of 5 days from the due date for the interim payment). The only difference in the process thereafter is the final date for payment of the sum specified in the payment notice is postponed by the same number of days as the number of days after the expiry date (for issue of the certificate) that the Contractor’s payment notice is given.
In both of the above cases the Contractor’s application shall state the sum it considers due to it at the relevant due date in accordance with clause 4.3 – that clause requires the amount due at the due date to be the valuation of work and materials as at the Interim Valuation Date.
Blog author:
Peter Hibberd
Past Chair, JCT