Interim applications and pay less notices - please beware!
30 January 2015
Section 110B of the Construction Act 1996 provides that, absent a payment notice and/or pay less notice served within the relevant time limits, the sum due to a contractor will be that contained in his application for payment.
The recent case of ISG Construction v Seevic College  is a stark reminder of the importance of issuing timely notices and the Court’s approach to attempts to subvert the intended effect of the Act.
Seevic engaged ISG under a 2011 JCT Design and Build Contract which provided for monthly interim payment applications and prescribed Court proceedings as the mechanism for final determination of disputes.
ISG submitted an interim application for £1,097,696 which Seevic failed to pay or serve a payment or pay less notice against. ISG subsequently commenced an adjudication in which the Adjudicator found the sum due was the full amount of its application.
Shortly before the Adjudicator’s decision, Seevic, presumably aware the Adjudicator would make the finding he in fact did, launched its own adjudication. It sought a determination (from the same Adjudicator) as to the value of ISG’s works as at the date of the interim application.
This second adjudication proceeded and the adjudicator valued the works at £315,450. Seevic refused to pay the sums awarded under first adjudication and ISG issued enforcement proceedings.
Decision and Comment
The Court held that the first adjudicator had effectively “valued” the works by deciding that the sum applied for was the correct sum in default. The second adjudication concerned the same dispute and the adjudicator therefore lacked jurisdiction.
This must be correct. The statutory payment regime would otherwise be redundant as a defaulting party could simply seek a determination as to the “true” value under the application to make good its failure to serve a timely notice. The words “coach” and “horses” spring to mind.
The importance of serving timely pay less notices cannot be over-emphasised. We increasingly see cases where clients have been caught out by this default mechanism.
Its significance is further illustrated by the JCT contractual payment mechanism where, if the Employer fails to serve the requisite notices, he is only able to seek repayment of any alleged overpayment at the end of the Project but not under any subsequent interim application.