Construction standard form contracts have a great deal to recommend them. Parties to a contract can save time and cost by starting negotiations with an industry recognised set of terms which deals with all the matters that the parties may have to agree.
But while a standard form provides a good starting point, it needs to be adapted to meet specific project needs. Parties should take great care when doing this because, as the case of Balfour Beatty Regional Construction Limited v Grove Developments Limited [2016] shows, in the context of amendments to the payment regime of the JCT Design and Build contract 2011 (JCT DB 2011) the courts are reluctant to step in and save them from the consequences of a drafting slip.
What happened?
Grove employed Balfour to construct a hotel and apartments at the O2 complex in Greenwich using JCT DB 2011. The contract sum was in excess of £121m.
The parties amended the JCT contract to reflect their particular project requirements. This was fine until they came to the payment provisions. Unamended, JCT DB 2011 envisages two sets of payments being made during the life of a project: monthly payments prior to practical completion (PC) and at intervals of two months after PC.
Rather than filling out the JCT contract particulars with details of the payment milestones, the parties inserted a bespoke schedule of 23 interim payment dates, setting out the payments to be made up to the contractual date for completion. However, they failed to make any provision for further interim payments should the works not be finished by that date.
Following significant delay, the works did not achieve PC by the stipulated date. The parties failed to agree how the interim payments would continue, and after taking independent advice Grove asserted that Balfour had no continuing entitlement to receive payments.
Decision
The court at first instance held that Balfour had no contractual right to interim payments beyond those expressly set out in the agreed schedule. In effect, the contractor would receive no further payment until the final account was settled.
- Balfour appealed to the Court of Appeal, which dismissed the appeal, ruling that: The contract contained neither an express nor an implied term providing for monthly interim payments following the expiry of the schedule. The payment schedule specified interim payments up to, but not beyond, the contractual date for completion. The court would not intervene to rescue a party from the consequences of what it had agreed. There was insufficient ambiguity in the drafting to enable the court to reinterpret the parties’ contract in accordance with “commercial common sense”. The contractor would receive full payment for its work in due course, but only in the final payment due under the contract.
- The requirement of the Construction Act for periodic payments was satisfied by the amendments the parties had made, even though those amendments might no longer practically work for the parties. Since the contract provisions were Construction Act compliant, there was no scope for the court to imply the Scheme for Construction Contracts (which does provide for continuing interim payments) into the contract.
Does JCT 2016 circumvent the issue?
JCT 2016 removes the distinction between payments pre and post PC, stating that monthly payments should continue until the issue of the final certificate.
Would the Grove case have been decided differently if the parties had used the JCT 2016 form instead of JCT DB 2011? Probably not. As a matter of contractual interpretation, the court’s decision is entirely legitimate. It is perfectly possible that the parties agreed to divide the contract sum into 23 payments. Why should Balfour be entitled additional interim payments simply because the works were delayed? On this analysis, the argument that Balfour should have to wait until issue of the final certificate for any additional payments is compelling. Put at its very lowest, it is entirely understandable that the court did not feel compelled to imply a contrary term. Against this background, given that the parties agreed to step away from the JCT payment provisions by inserting a bespoke schedule, any underlying change in the standard form regarding frequency of payments would almost certainly be irrelevant.
But while the outcome may have been the same under the 2016 form, arguably the new wording would have alerted the parties that there was no reason for the regular payment flow to end at PC. They may have drafted their payment schedule differently to take account of this – in which case the dispute may not have arisen at all.
Final thoughts
The real issue in this case was that the parties did not consider what would happen to payments if the works were delayed. The implication in JCT forms prior to 2016 was that substantially all of the contract sum (less only the retention) was certified prior to, or immediately after, PC. But this did not reflect a reality in which substantial sums (typically arising from extra work or claims) often became payable after PC. The 2016 form may be viewed as a closer reflection of what happens in practice, reminding parties that PC is by no means the end of the payment story: they also need to think about what will happen afterwards. As this case demonstrates, if the parties’ failure to consider this point results in a bad bargain, they can expect scant sympathy from the courts.
Blog Author: Beth Cradick – Associate, Construction, Engineering and Procurement, BLP