This blog post looks at a recent Technology and Construction Court (TCC) case that highlights the need for clarity in final account documents.
Over the past few years the Courts have reiterated that interim payment applications must make it very clear what they are. This is because if the recipient of an interim payment application does not realise what it is, it will probably not serve a payless notice in response, and if it doesn’t, it will lose the right to dispute the amount claimed (until the next interim application or final account application).
But is the same clarity required in respect of a final account? This was a question that the TCC dealt with in a recent case.
The case involved a subcontract between a contractor and a subcontractor for the installation of a steam and chilled water system at a creamery in Cornwall.
The subcontract contained specific provisions about the final account process, similar to the process for interim payment applications.
In summary, it was a three stage process:
- the subcontractor was to submit a proposed final account to the contractor within four weeks of completion of the subcontract works;
- within 13 weeks of the subcontractor’s proposed final account, the contractor was to notify the sub-contractor of “the proper amount due for payment” (the contractor’s notification); and
- if it disagreed with the amount in the contractors notification, the subcontractor would then have to give the contractor notice of its ‘dissent’ within 14 days. If the subcontractor did not dissent within that time, then the figure contained in the contractor’s notification would become binding.
In the event that the subcontractor did not submit its proposed final account (i.e. step (1) above), the contractor could value the amount due for payment and notify the subcontractor accordingly. Again, if the subcontractor fails to dissent from the notified sum within 14 days, the sum notified would become payable.
The subcontractor emailed its final account to the contractor on 17 May 2016. On 2 September, the contractor sent the subcontractor what it described as “our final account assessment for the works carried out”. This document was a lengthy final account assessment, at the end of which was set out the subcontractor’s figure for the final account (£3,284,434.62) and the contractor’s figure (£2,643,212.58).
The question was whether the contractor’s assessment of 2 September was a contractor’s notification pursuant to the terms of the subcontract. Coulson J found that it wasn’t. Although it was a very detailed assessment of the final account figures, it didn’t specify amounts that had already been paid, retentions to be held back or, crucially, the amount due. It therefore failed to satisfy the requirements of the subcontract.
This is probably a fair result. The subcontract required the contractor to specify the amount due. Nowhere in the contractor’s assessment of 2 September was that figure set out.
So as with interim payment applications, a final account document must set out very clearly what it is, and must include all the information required under the contract. Put another way, a final account document is only a final account document when it is fully compliant with the terms of the contract.