Payment Schedules and Contract Overruns

15 March, 2016
by: Cripps Pemberton Greenish

calendarIf you have agreed a payment schedule for interim applications and payments in your construction contract and the project overruns until after the agreed payment schedule has expired, that may leave the contractor with no contractual right to apply for interim payment even though the works are ongoing.  That was the outcome of a recent case heard at the Technology and Construction Court (Grove Developments Ltd v Balfour Beatty Regional Construction Ltd [2016] EWHC 168).

 

The facts of the case were that the contractor began work in July 2013.  The target date for completion was in July 2015.  A payment schedule was agreed that included 23 interim payments up until July 2015.  The works overran and in August 2015 the contractor issued an interim application for payment (interim application 24 claiming over £25 million).  A dispute arose as to the timing and validity of the employer’s pay less notice and in addition to that the employer said that the contractor had no contractual right to this 24th interim payment.

 

The contractor took the dispute to adjudication and the adjudicator awarded payment of further sums to the contractor as part of interim payment 24.  In the meantime (before the adjudication decision had been made) the employer sought the court’s determination on whether the contractor had any contractual right to a 24th interim payment.

 

The court had to consider the principles of interpreting commercial contracts.  Whilst commercial common sense can be a factor in the interpretation of commercial contracts “the Court should not strain to find ambiguity where none exists.”  The court decided that as the contractor had agreed a finite schedule of when interim payments would become due it was an express term of the contract that there would be only 23 valuations.  Despite the agreement not providing a mechanism for interim payments for the duration of the project (if it overran) there was no reason to imply any of the terms from the payment provisions in the Scheme for Construction Contracts into the contract.

 

What this case demonstrates is the danger for a contractor in agreeing to a specific schedule of interim payments in your contract.  If you are considering such a payment schedule in a construction contract you should also consider what will happen if the project overruns and include a term in the contract to ensure interim payments are due throughout the duration of the project.  Our team would be happy to help with the drafting of such terms.