An employer must serve the requisite notices otherwise it will have to pay the sum the contractor applied for.
Much was written about the amendments introduced to the Housing Grants, Construction & Regeneration Act 1996 (the Act) by the Local Democracy, Economic Development and Construction Act 1999, yet the amended Act had not been considered by the Technology and Construction Court (TCC). That was until yesterday when the decision in ISG Construction Ltd v Seevic College was handed down.
This case concerns serial adjudications, a common occurrence. ISG (the Contractor) was engaged by Seevic College (the Employer). In the first adjudication between the parties the adjudicator decided that the Contractor was entitled to just under £1.1m which was the sum the Contractor claimed in its application for payment number 13. The Employer had failed to serve a payment notice or a pay less notice.
The Employer had obviously anticipated that it would lose the first adjudication so, four days before the decision was reached, it served an adjudication notice seeking a decision as to the value of the works carried out by the Contractor as at the date of application number 13. The same adjudicator was appointed and he decided that, in fact, the value of the Contractor's work was just over £315,000 and ordered the Contractor to repay the Employer the difference between what it received in the first adjudication and what was found to be the value of the works in the second adjudication.
The Contractor commenced enforcement proceedings seeking to enforce the decision in the first adjudication and a declaration that the decision in the second adjudication was invalid for want of jurisdiction.
Mr Justice Edwards-Stuart made a number of interesting findings:
- The Contractor's entitlement to payment (which is derived from its contract) is only either through the machinery for interim applications or the final statement which is served at the end of the project. The Contractor has no other entitlement to payment under its contract.
- The Employer, absent a requisite notice, does not have the right to seek repayment of the money paid to the Contractor on the ground that either at the date of the last interim application or some subsequent date, the true value of the Contractor's work was less than the gross amount stated in that application. Put differently, if an Employer fails to issue the requisite notices under the contract, the sum applied for payment by the Contractor is deemed to be the value of the works at that stage.
- The Employer cannot demand a valuation of the Contractor's work on any other date other than the valuation dates for interim applications specified in the contract (although obviously it must be so entitled at the final statement stage).
- That the adjudicator in the first adjudication must in principle have decided the value of the works in respect of the relevant interim application.
He went on to say "The statutory regime would be completely undermined if an employer, having failed to issue the necessary payment or pay less notice, could refer to adjudication the question of the value of the contractor's work at the time of the interim application (or some later date) and then seek a decision requiring either a payment to the contractor or a repayment by the contractor based on the difference between the value of the work as determined by the adjudicator and the sums already paid under the contract."
This case is clearly a stark reminder that an employer must serve the requisite notices otherwise it will have to pay the sum the contractor applied for.