Payment (Section 4)

Question 1

What is a contract sum?

Answer 1

A sum which is agreed between the Contractor and the Employer for the Contractor to carry out the works.

Question 2

What items are able to adjust a contract sum?

Answer 2

Variations, provisional sum adjustments, approximate quantity adjustments, acceleration, fluctuations, loss and expense (relevant matters).

Question 3

How are adjustments to the contract sum taken into account?

Answer 3

An adjustment to the contract sum should be taken into account at the next Interim Certificate. E.g. paying the value of a variation that had been instructed during the period.

Question 4

What are the timeframes associated with the Final adjustment (final account)?

Answer 4

No later than 6 months from issue of the PC certificate shall the contractor provide the CA / QS with all documents necessary to adjust the CS. Then, the CA / QS has 3 months from receipt of the documents to prepare a statement of all adjustments and send a copy to the contractor.

Question 5

What are the 2 alternatives for payment in the D&B contract?

Answer 5

Alternative A = Stage payments (work stages identified and when completed an application is submitted)
Alternative B = Periodic payments i.e. monthly

Question 6

Which is the default if an alternative is not selected?

Answer 6

Alternative B - Periodic payments

Question 7

Can you tell me about the payment terms on a project you have worked on?

Answer 7

Contractor issues their Interim Valuation Application 7 days prior to the due date. CA has 5 working days from the due date to issue the Payment Notice/Certificate. The final date for payment is 14 days after the due date. The client must issue a Pay Less Notice no later than 5 days before the Final Date for Payment if they are to amend the amount stated in the Payment Certificate (or Interim Valuation Application if no payment notice was issued).

Question 8

What is the difference between the JCT vs NEC payment timeline?

Answer 8

Pay Less notice is 7 days before final date for payment, not 5 as in JCT.

Question 9

What is the JCT Scheme for Construction Contracts payment timeline?

Answer 9

The Scheme for Construction Contracts applies when construction contracts don’t comply with HGCRA 1996. Where the contract fails to provide an adequate mechanism for determining what payments become due under the contract or when they become due for payment, the below provisions shall apply:

1. ) the latter of; the expiry of 7 days following the relevant period or the making of a claim by the payee (contractor)
2. ) The final payment is payable when; 30 days following completion of the work or the making of a claim by the payee (contractor) - whichever occurs later.
3. ) The final date for payment shall be 17 days from the date that payment becomes due.

Question 10

Which payment dates are fixed by statute and which dates are fixed by the contract?

Answer 10

Contract = IVD to D.D (7 days), Due date to final date for payment (14 days), Pay less to final date for payment (5 days).

Statute = Due date to interim certificate (5 days)

Question 11

If no adequate provisions for payment terms are provided for the contract, what are the payment terms to be based on?

Answer 11

Those stated in the Scheme for Construction Contracts will be used.

Question 12

Where is the due date specified?

Answer 12

Pre-agreed date between the contractor and employer, as per the Contract Particular’s.

The first Interim Valuation Date is usually specified in the Contract Particular’s and a timeframe for subsequent IVD’s is specified. If the first Interim Valuation Date isn’t specified, then the date is taken as 1 month after the date of possession. As the due date is 7 days after the IVD, they are also known.

Question 13

Using the JCT SBC if a contractor does not submit an interim application by the due date what is the process for payment?

Answer 13

The QS will undertake a valuation and produce an interim valuation which will be the basis for the interim certificate.

Question 14

Using the JCT D&B if a contractor does not submit an interim application by the due date what is the process for payment?

Answer 14

The D&B contract does not name the QS and if there is no application made then the onus is on the contractor to produce an application and the payment dates shift forward.

Question 15

Using the JCT SBC if the contractor submits an application but the CA does not submit his interim certificate what happens?

Answer 15

The contractors interim application will become an interim payment notice.

Question 16

If, under a JCT SBC neither the contractor submits his interim application and the CA does not produce an interim certificate what is the process?

Answer 16

The contractor can issue an interim payment notice which will shift the payment dates forward.

Question 17

If the employer fails to pay by the final date for payment what happens?

Answer 17

Contractor to give notice (intention to suspend performance), if the employer fails to pay within 7 days of the notice, the contractor is entitled to suspend performance. Contractor entitled to reasonable amount in respect of costs and expenses and interest on the unpaid amount.

Question 18

What must be provided in a pay less notice?

Answer 18

Both the sum considered to be due to the contractor at the date of notice and the basis that sum has been calculated.

Question 19

Following practical completion can you tell me about the due dates on a project you have worked on and also when the last due date is?

Answer 19

Under the 2016 JCT SBC edition, interim payments will continue on a monthly basis after practical completion, following the same due dates as prior to PC. The last due date shall be the date of expiry of the Rectification Period or if later the date of issue of the Certificate of Making Good.

Question 20

Where are the details for advance payment stated?

Answer 20

Contract Particulars

Question 21

What might be included in contract particulars regarding advanced payment?

Answer 21

1.) Contract Particulars will state whether it applies / does not apply.
If applicable;
a.) the advance payment amount
b.) the date at which the advance payment will be paid
c.) the repayment schedule (when the contractor will pay back the money e.g. in 100k installments at dates x, y and z.
e.) Whether an advance payment bond is required.

Question 22

When is the final certificate to be issued?

Answer 22

Not later than 2 months after whichever occurs later:

1. ) end of rectification period,
2. ) date of issue of the certificate of making good.

Question 23

When is the final date for payment after the final certificate is issued?

Answer 23

The final date for payment is 28 days from its due date. The due date is either; the date the Final Certificate is issued, or the last day of the 2 month period after their the end of the rectification period or the date of the issue of the certificate of making good (whichever is later).

Question 24

What does the final certificate state?

Answer 24

1. ) The contract sum as adjusted by variations, prov sums, etc.
2. ) The amounts stated as due in interim certificates
3. ) and any final payments due to the contractor.

Question 25

What if the Final Certificate is not issued in accordance with the contract?

Answer 25

After the 2 month window for the employer to issue the certificate has passed, the contractor may give notice to the employer with a Final Payment Notice, stating what he considers to be the final payment due and the basis on which the sum has been calculated.

The final date for payment is 28 days after the contractor issues the notice.

The employer can issue a Pay Less notice no later than 5 days before the final date for payment.

Question 26

What are the rules on treatment of retention?

Answer 26

A statement (statement of retention) showing the amount of retention to be deducted from each Gross Valuation is required to be sent to the contractor prior to issue of each Interim Payment Certificate. This is usually included within the Payment Notice or Recommendation for Payment.

Question 27

What is a retention bond?

Answer 27

A bond which is paid by an insurer / bank if the Contractor doesn’t correct all defects on the defect schedule. The amounts which would otherwise have been held as retention are instead paid in full to the client, with a bond being provided to secure the amount.

Question 28

What is the typical value of a retention bond?

Answer 28

3-5% of the contract sum.

Question 29

What other bonds are found in the JCT SBC?

Answer 29

Retention, performance, materials off site, advance payment, tender / bid bond.

Question 30

How are bonds paid for?

Answer 30

Bonds are often paid for by the contractor, but will often be reflected in the tender price, so ultimately the client will pay for the bond.
On one of my projects in Croydon, the performance bond premium was initially paid for by the contractor, however was a prelim item which was included within the first Interim Payment [and therefore paid for by the client].

Question 31

What are the fluctuation options in the JCT SBC?

Answer 31

Fluctuation provisions provide a mechanism for dealing with the effects of inflation.
Option A: contribution, levy and tax fluctuations,
Option B: Labour and material cost and tax fluctuations
Option C: Formula adjustments

Question 32

What is fluctuation Option A?

Answer 32

Option A: contribution, levy and tax fluctuations

This would include things like taxes, National Insurance and other forms of excise duties and statutory contributions. Where the contract permits, the contract sum may be adjusted for changes in the rates or amounts at which these taxes or duties are paid, or in certain circumstances where new taxes are introduced, or old ones discontinued.

Question 33

What is fluctuation Option B?

Answer 33

Option B: Labour and material cost and tax fluctuations

The contract sum is based on the cost to the contractor of labour and materials current at a specific moment in time. (This is sometimes referred to as the ‘base date’.) Where the contract permits, the contract sum may be adjusted for actual changes in these prices.

Question 34

What is fluctuation Option C?

Answer 34

Option C: Formula Adjustments

Essentially a ‘hybrid’ where, instead of using the actual increases in labour, materials and equipment, the contract stipulates a formula, so that the contract sum may be adjusted, by applying the formula with a series of indices to calculate the increase or decrease for the relevant part of the work.

Question 35

If no fluctuation option is selected, which option applies?

Answer 35

Option A: Contribution, levy and tax fluctuations.

However, all options can be omitted if fluctuations are non-applicable i.e. on smaller / shorter duration projects.

Question 36

What is loss and expense?

Answer 36

Construction contracts will generally provide for the contractor to claim direct loss and/or expense as a result of the progress of the works being materially affected by relevant matters for which the client is responsible.

Question 37

What must the loss and expense be in a loss and expense claim?

Answer 37

Direct loss

Question 38

What are the relevant matters in the JCT SBC?

Answer 38

Variations, instructions, opening up of works that are in accordance with contract, antiquities, deferment of possession, incorrect information in the contract documents

Question 39

When must loss and expense be raised by the contractor?

Answer 39

As soon as the Relevant Matter is likely to effect progress and becomes apparent .

Question 40

How long does the CA have to make a decision on a loss and expense claim?

Answer 40

Within 28 days of the initial assessment and information, and 14 days after each subsequent update.

Question 41

How is loss and expense calculated / valued?

Answer 41

By assessing:

1. ) Prolongation of prelims
2. ) The disruption of labour i.e. attendance records, clerk of work reports, etc.
3. ) Additional waste and abortive material purchase
4. ) Inflation
5. ) Increased cost of head office overheads
6. ) Loss of profit
7. ) Interest Charges