As part of its 2016 rolling programme of updates, the Joint Contracts Tribunal (JCT) has now published the JCT 2016 Design and Build (DB) Contract family. We set out below practical tips on the new provision for Interim Valuation Dates in the core Design and Build 2016 wording.
Design and Build 2016 - Section 4: Payment
In the drafting of DB 2016, the JCT's overall intention has been is to simplify the payment provisions and the wording has therefore been re-arranged into eight sections as follows:
- Contract Sum and Adjustments
- Payments and Notices - general provisions
- Interim Payments - calculation of sums due
- Listed Items
- Loss and Expense
- Final Statement and Final Payment.
Interim Valuation Dates (IVDs)
Within the third of these sections (Payments and Notices - general provisions), DB 16 provides for IVDs which reflect the provisions seen in other revised JCT contracts published this year.
The impetus behind these changes flows from the Construction Supply Chain Payment Charter (Charter) reissued by the Construction Leadership Council in August 2016. This initiative is being promoted by the Government and its Fair Payment Campaign - the Charter states an ambition for industry wide standard terms by 2025 providing for 30 day payment terms and zero retentions. Challenging targets; the JCT in any event has introduced IVDs to take account of the first of these aims, with the intention of providing a specified date that will lead to greater certainty throughout the supply chain.
The key points are as follows, if the DB 16 wording is unamended:
- The due dates for interim payments will be seven days after the IVD, unless the Interim Payment Application is received after the IVD (see below);
- The IVDs are to be defined in the Contract Particulars (CP); note in particular:
- If no date is stated in the Particulars, the first IVD will be one month after the Date of Possession
- Subsequent IVDs are to be "thereafter the same day in each month or the nearest Business Day in that month"
- If the Interim Payment Application is received after the relevant IVD, the due date will be seven days after the Interim Payment Application is received by the Employer; and
- The final date for payment of each Interim Payment (and the final payment) is 14 days from its due date.
Avoid getting caught out by the new wording on IVDs:
- Choose the date of the first IVD carefully (and specify that date in 4.7.2 of the CP) - this choice is of fundamental importance. Note:
- All subsequent IVDs will flow from this first date
- If you decide to leave CP 4.7.2, blank then the first IVD will be one month after the Date of Possession
- Once the first IVD is specified, diarise key dates going forward to include for each month:
- The IVD, remembering subsequent IVDs will be on the same day each month, or the nearest Business Day in that month
- The due date, being seven days after each IVD
- The cut-off date for service of a Payment Notice which is required no later than five days after the relevant due date.
- The final date for payment - 14 days from its due date
- The cut-off date for service of any Pay Less Notice - no later than five days before the final date for payment
- If the Interim Payment Application is received after the IVD, you will need to re-diarise subsequent dates for that payment cycle. This is because the due date will then be seven days after receipt of the Application and the Payment Notice must be served no later than five days after that altered due date.
Significant Risk Points
In order to avoid a smash and grab adjudication, it has always been important to keep accurate timetables for notices and payment in accordance with the Housing Grants, Construction and Regeneration Act 1996 as amended. This is no different with the new form of DB 16.
Keep in mind the following notable danger areas arising out of the new provision for IVDs in JCT DB 16 - they're dangerous as they can be easily overlooked, leaving you exposed:
- Take account of Business Days (as defined) when working out IVDs (see CP 4.7.2); and
- Ensure you re-diarise key dates (due date, dates for Payment Notice, Pay Less Notice etc) when the Interim Payment Application is received after the IVD.