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MESSAGE FROM THE CEO

Welcome to our latest E-Briefing edition, where our contributors have once again written some very interesting thought leadership articles that contribute to many of the ongoing debates and discussions in the construction industry.

The articles published in this E-Briefing look at matters concerning adjudication in both the UK and Australia, modern methods of construction and the very current issue of managing the impact of the COVID-19 on construction projects.

I would like to thank all of our contributors for the time and effort they have put into preparing and writing these articles for us to share. I would also like to thank our invited guest writer, Christian Charles from Fladgates LLP, for his very interesting and informative article on adequate payment mechanisms under the UK Adjudication Act.

The biggest issue that is currently affecting us all, including our families, friends, colleagues and businesses is the COVID-19 pandemic. The impact on people varies from health, job security and the supply of basic provisions, through to social isolation over an unknown timeline. I feel society as a whole will be truly tested in the months ahead and believe a global response will be required to manage all critical issues through these troubling times.

However, I am also hopeful that the virus will reach a peak and then decrease and be managed in the longer term with an effective immunisation programme. This may mean that we are going to have to manage the worst over the next 4 to 6 months before things start to settle down and finally return to normal. DGA Group is committed to continuing to deliver the highest level of service possible to our clients, through these turbulent times, and are working closely with them to ensure the least amount of disruption occurs.

I have regular updates from our international offices who are all coping with the effects of the pandemic at different stages of its cycle. Currently, Hong Kong is the most affected and Australia and Canada the least affected.

As a business we will always follow the advice of the various country Government’s medical advisors where we operate, to ensure we reduce the risks to our staff and families as much as possible. We have issued links to the various Governments live information portals to our staff to assist them with keeping up to date with the latest advice. If any of our staff have any concerns, they should immediately discuss these with their line manager so that no one is left worrying about any issues they may have. We will do everything we can to support our staff and their families through this difficult time, as I am sure is the case in other businesses.

CONTENTS

MANAGING THE IMPACT OF THE COVID-19 OUTBREAK ON CONSTRUCTION PROJECTS 5

THE IMPORTANCE OF A DATE IN VICTORIA, AUSTRALIA 9

OFF-SITE CONSTRUCTION – WHAT’S HOLDING IT BACK? 13

PAYMENT IN CONSTRUCTION CONTRACTS: WHAT CONSTITUTES AN ADEQUATE PAYMENT MECHANISM? 16

DGA TRAINING SERVICES 21

MORE INFORMATION 23

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I do hope that the next E-briefing will allow me to report a more positive message to our readers. In the meantime, I would encourage everyone to please continue to follow their local Governments medical advisors’ advice and keep yourself and your family safe.

If you would like to discuss any of the featured topics or any related matter, please feel free to contact us.

DAVID GIBSON

CEOWith the number of infections of the Novel Coronavirus-COVID19 (Coronavirus) escalating daily, Mainland China and the rest of the global community continue to tighten restrictions on cross border movement of materials.

Factories wound operations down one to two weeks in advance of the Chinese New Year (25 January 2020) putting a halt on mass production initially until 3 February 2020. This was then extended until the 9 February 2020, due to the virus.

As most of the factory workers are from provinces located in Northern China (including, Wuhan, the suspected origin of Coronavirus) even when workers do return to work, they would be subjected to either mandatory or voluntary quarantine for a further period of 14 days. This means no production in the manufacturing sector for an extended period while the situation regulsrises itself; and with contractors and employers, who are entirely dependent on a just-in-time supply chain, being hardest hit.

It is anticipated that there will be a wider impact of the closure of the factories in the construction industry across the globe. In particular, the availability of construction materials and manufactured supplies from Mainland China.

Presently, jurisdictions that DGA Group operate in have directly and indirectly experienced the effects of the Coronavirus. For example, in South Africa the local construction projects are already being affected by delayed shipments of construction material due to the pandemic. This has resulted in South African contractors refining their contract terms to minimize the potential financial impact the virus could have on prospective projects because contracts typically place the risk of material delivery and delays on the contractors. As such contractors are now seeking to add provisions within contracts to allow for extensions of time where they cannot obtain materials or there is a shortage as a result of an unforeseeable epidemic.

MANAGING THE IMPACT OF THE COVID-19 OUTBREAK ON CONSTRUCTION PROJECTS

ANEL IDRIZ

Director, Hong Kong

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either of the parties from fulfilling their obligations under the contract (force majeure).

Whilst the term ‘force majeure’ has no meaning in common law jurisdictions (such as in the UK), and express clauses are interpreted strictly. No doctrine of force majeure will apply outside of the contractual mechanism. However, the position is different in many civil law systems where the substantive governing law of an agreement may allow for the implication of force majeure mechanisms.

In addition, force majeure clauses that are widely worded will not necessarily capture events such as the Coronavirus outbreak. The party relying on the clause will still likely need to prove that the force majeure event was not “reasonably contemplated” by the parties when making the contract and that the event is “beyond the reasonable control” of the party seeking relief. It is therefore important that each force majeure clause should be examined independently on the facts of each case to determine its meaning and significance.

Under commonly used contracts such as New Engineering Contract (NEC) 3 or 4 Engineering and Construction Contract Clause 60.1(19), Coronavirus may not be classified as force majeure but be interpreted as a ‘compensation event’.

The clause itself is broad as it says ‘event’, the virus itself may not be deemed to be the ‘event’, therefore, the contractor will need to state one or more of the typical ‘events’ (as mentioned above – e.g. shortage of materials etc) that follow from such an outbreak and then prove that it ‘stops’ the work.

However, further review would need to be taken to establish whether the clause has been amended as at times there is only a remedy for time and not money.

For FIDIC contracts such as New Yellow Book ((Plant And Design-Build contract)(1st Edition)(1999)) and Silver Book ((EPC/Turnkey Projects)(1st Edition)(1999)), the contractor should ensure they notify the Engineer under Clause 19.2 when it is prevented from performing its obligations

In the UK the British excavation plant manufacturer JCB reported that it has been forced to cut its production output as a result of more than a quarter of its suppliers in China having to suspend manufacture because of the Coronavirus outbreak. As the construction industry in the UK ramps up its use of modular construction (with some supplied by factories in China) the initial signal by JCB could be a sign of a wider repercussion yet to come.

The Coronavirus has also had a wider impact in Asia, which has been the hardest hit by the virus and not solely affecting the availability of construction materials. In Singapore, the construction at Whistler Grand project in West Coast Vale stopped when an employee was suspected of being infected with the Coronavirus.

In Hong Kong, delay and disruption has been caused to projects by the public departments being placed on mandatory shutdowns to prevent the spread of the virus; resulting in a delay in the issuing of work permits or approving drawings by the necessary statutory departments. Additionally, insufficient construction workers have also been reported in Hong Kong as a result of quarantine imposed by Hong Kong authorities as a proportion of the labour force are from Mainland China.

WHAT THE CONTRACTS SAY

Whilst contractors and the supply chain attempt to mitigate the effect of the delays on their projects, employers and contractors should in the first instance review their contracts to understand the remedies and their contractual rights and obligations in the event of a disease outbreak. They should establish their options for extension of time and loss and expense from the applicable clauses.

Different contracts internationally have varied provisions for when such an event occurs beyond the control of the parties defining the allocation or sharing of the risk. Contractors may consider that the virus can be classified as an unforeseeable and unavoidable circumstance that prevents

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under the contract by an event which satisfies the definition of Force Majeure under Clause 19.1. Under Clause 19.2, the contractor will be compensated on time but not on cost.

In any event, the contractor needs to ensure that the notice is served within 14 days of the contractor becoming aware, or should have become aware, of the event.

MINIMUM SOLUTION

With each case taken on its own merit based on the remedies as contained within the specific contract the basic minimum requirement for any contractor in times of uncertainty should be as follows:

1. Proactively try to mitigate the possible damages as much as possible, and not employ the ‘wait and see’ attitude;

2. Whilst each contract may or may not have the specific provisions for a remedy for the Coronavirus the contractor will need to analyse their contracts in detail to establish whether there is a remedy for entitlement, and to what degree i.e. time and money;

3. Upon establishing the relevant clause that the parties wish to rely upon, they will need to ensure compliance with the terms of the contract and provide timely notices in accordance with the time limit specified. Failure to notify may result in the matter being time barred; and

4. Finally, contractors will need to ensure that the necessary particulars are provided in accordance with the contract. Importantly, detailed record keeping is paramount to establish the effect of the Coronavirus on the works in terms of time and cost.

In summary, as it is premature to establish the extent of the effect of the Coronavirus internationally; with various jurisdictions being harder hit than others, contractors and employers need to be contractually aware of the provisions for remedy under the current circumstances.

In any event, parties should comply with the terms of the contract, providing timely notices accompanied with necessary particulars, and recording actual effects in relation to time and money.

If either party is unsure how to proceed under the current Coronavirus outbreak, DGA Group has capability across each of its international offices to provide advice and guidance for contractors and employers on how to proceed next. Therefore, please feel free to contact us.

MKA Bowen v Carellii (MKA Bowen) is a case that examines the Building and Construction Industry Security of Payment Act 2002 (Vic) (the Act), focusing particularly on reference dates and the early service of claims for progress payment. The decision, handed down by the Supreme Court of Victoria in September 2019, overturned the previous understanding of the Victorian Act, namely that a payment claim served prematurely could still be considered a valid payment claim under the Act.

This article will briefly look at what the Act sets out in relation to payment claims and reference dates, consider the courts’ current position, then identify practical steps that can be taken to ensure you do not fall foul of this new interpretation.

BUILDING AND CONSTRUCTION INDUSTRY SECURITY OF PAYMENT ACT 2002 (VIC)

The Act in Victoria sets out a person’s right to progress payments relating to construction work or the supply of related goods. The overarching aim of the Act is to ensure a person is entitled to, and able to, recover progress payments. Basically:

(i) A party may present a claim for a progress payment on and from the reference date;

(ii) The reference date will be as detailed by the contract, or, if the contract is silent, then the Act provides for claims for a progress payment to be issued monthly;

(iii) Only one claim for a progress payment can be issued per reference date (in other words one per month);

(iv) The recipient of a claim for a progress payment has a set period of time to assess and respond to that properly submitted claim.

Reference dates are extremely important as not only do they provide the dates around which the whole payment process revolves, but they also enable consistent frequency of progress payments. It is, therefore, essential that all parties to a contract clearly understand the relevant reference dates applicable to their project and the payment process that has to be followed.

i MKA Bowen Investments Pty Ltd v Carelli Constructions Pty Ltd [2019] VSC 436

THE IMPORTANCE OF A DATE IN VICTORIA, AUSTRALIA

JACQUELINE BARKER

Senior Consultant, Melbourne, Australia

GUIDANCE FROM THE COURT

In 2010 the Supreme Court of Victoria confirmed that an early claim for a progress payment would only come into effect upon the relevant reference date, so confirming that a claim for a progress payment could indeed be served earlier than the relevant reference date (the Metacorp caseii ).

This understanding was however challenged by the High Court of Australia in the case of Southern Haniii which confirmed the existence of a valid reference date was a precondition to a valid claim for a progress payment. The NSW High Court echoed this interpretation in the All Seasonsiv case. Although these judgements contradict the earlier judgement in Metacorps, it should be noted that both Southern Han and All Seasons cases were based around the, now amended, Building and Construction Industry Security of Payment Act 1999 (NSW), and not the Victorian Act. These seemingly contradictory interpretations by the courts of the Victorian and NSW Acts was not clarified until September 2019 with the case of MKA Bowen.

BOWEN V CARELLI

In late 2017, MKA Bowen Investments Pty Ltd engaged Carelli Constructions Pty Ltd to design and construct a block of apartments in Mont Albert, Victoria. The contract stipulated that the reference date of the 25th day of each month would apply. The contract also contained a clause which stated that early claims for a progress payment would be deemed to have been made on the date for making that payment claim.

The following year, on the 26th November 2018, Carelli submitted their claim for a progress payment, and this was

ii Metacorp Australia Pty Ltd v Andeco Construction Group Pty Ltd & Ors (2010) 30 VR 141

iii Southern Han Breakfast Point Pty Ltd (in liq) v Lewence Construction Pty Ltd (2016) 260 CLR 340

iv All Seasons Air Pty Ltd v Regal Consulting Services Pty Ltd [2017] NSWCA 289

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followed by submission of their December 2018 claim on 21st December, for the sum of $411,358.36. As with many other contractors, it is more than likely that Friday the 21st of December 2018 would have been Carelli’s last working day before the Christmas and New Year break.

Upon receipt of a payment schedule from MKA Bowen in January 2019 for the sum of $7,182, which was issued in response to Carelli’s December claim for a progress payment, Carelli commenced adjudication proceedings. The Adjudicator determined that Carelli was entitled to payment against the December 2018 claim for a sum of $209,470.04, significantly higher than the sum detailed in MKA Bowen’s payment schedule.

MKA Bowen did not agree with the adjudicator’s determination and so commenced proceedings to overturn the determination. The main focus of their argument was that the December claim for a progress payment was not properly served under the Act, in other words, it was not served on and from the relevant reference date.

The Supreme Court of Victoria agreed with MKA Bowen confirming that the December claim for a progress payment was not properly served under the Act. The court also considered the clause in the contract which stated an early claim for a progress payment would be deemed to have been made on the date for making that payment claim, however, they found the clause to be of no effect and considered it to contradict the intent and purpose of the Act.

PRACTICAL STEPS

Although we now have greater clarity from the courts regarding reference dates, there are some practical steps that should be applied to any construction contract that is subject to the Act:

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A King’s College Construction Law Association (KCCLA) seminar held on 12th February 2020 endeavoured to answer the question of what is holding back off-site construction, also known as Modern Methods of Construction (MMC) in the UK today.

Whenever one reads a report or article on the state of the construction industry, it always seems to be facing the same challenges and pressures. These include reactions to a competitive marketplace, traditional thinking and lack of investment. Further, the industry is under pressure to improve its green credentials, overhaul an ageing workforce and increase productivity whilst staying safe and trying to return a margin – not always successfully.

In the 2016 report by Mark Farmer, “Modernise or Die – Time to decide the industry future” he postulated the “construction industry and the clients that rely on it are at a critical juncture…” and that “deep-seated problems have existed for many years…”. The issues Farmer identified as affecting the industry included low productivity, low predictability, workforce size and demographics, lack of collaboration and a lack of investment.

Nonetheless, the government has thrown down a gauntlet to the industry by establishing a target of 300,000 new house building starts a year. This is an ambitious target when one considers in the year ending December 2017 the official statistics showed only 165,090 starts, and a hardly improved 165,160 through to December 2018.

Both Sir Oliver Letwin and the House of Lords Science and Technology Committee have championed a greater role for MMC in delivering much needed homes faster, to a better quality and more sustainable than traditional methods. Together these reports, and Mark Farmer’s views, identify opportunities that MMC might offer to close the gap between housing production and the government’s target, as well as alleviating some of the issues affecting the industry.

(i) Understand the contract you are working with;

(ii) Be clear how the contract aligns or doesn’t align, with the Act;

(iii) If the contract does not state or provide a mechanism to calculate reference dates then ensure all parties are aware that the Act will apply;

(iv) Keep good records of when all claims for progress payments have and will be issued, this should include details of the works that have been included within each claim;

(v) If you are a contractor, where possible align subcontractors and supplier claims for progress payments, be aware of your obligations and apply the same process against their claims.

Remember claims for progress payments must be served “on and from each reference date…” (Section 9(1) of the Building and Construction Industry Security of Payment Act 2002 (Vic)) regardless of whether the contract deems the submission of claims before the relevant reference date as only becoming effective from the next reference date. Claims must not be submitted on any other date, even if the other party requests you to do so.

And finally, when the reference date falls on a non-business day (as in the MKA Bowen case) then the payment claim should be submitted on a business day after the relevant reference date not before – even if it is Christmas!

DGA can offer tailored services to help support your business to ensure you comply with the relevant security of payment legislation applicable to your project. Should there be a need to commence or defend a dispute referred to Adjudication, DGA has a wealth of experience and expertise allowing the provision of a wide range of services to ensure you receive the support you need.

Note: the above article focuses on the Building and Construction Industry Security of Payment Act 2002 (Vic). For guidance on the current payment legislation in place in other States and Territories please contact us.

FUTURE ARTICLES

Another related matter that was considered in a recent case (Shape Australia Pty Ltd v The Nuance Group (Australia) Pty Ltdv ), regarding the rights of a party to present a new claim for a progress payment when no further work had been undertaken and whether Liquidated Damages should be deemed an ‘excluded amount’ under the Act will be looked at in our next edition.

v [2018] VSC 808

OFF-SITE CONSTRUCTION – WHAT’S HOLDING IT BACK?

BRENDAN ROBINSON

Director, Commercial Services, UK

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These themes were echoed in the KCCLA seminar. Hosted by Fladgate LLP and DGA Group, the seminar heard from Fladgate’s Christian Charles, Michelmores’ Alan Tate and Shaun Tate from Mace Tech. Each identified the issues affecting the industry and the opportunity that MMC could play in overcoming them.

Alan Tate underscored his experience with housing associations and identified how the hidden benefits of MMC outweighed any increased upfront costs. He emphasised the greater programme certainty aligned with enhanced quality and a corresponding reduction in defects, as being a major selling point to his clients.

Shaun Tate presented a case study on Mace Tech’s commitment to MMC and used its Stratford project as an example of where Mace has embraced the MMC concept. Mace is currently constructing a multi-storey residential block where the floor for each level is precast and delivered to site complete with the façade already attached. The project also makes use of pre-constructed bathroom pod’s, each being installed in position before the next level commences. This means that they can construct an enclosed floor in just five and a half days.

From a constructor’s point of view, the use of MMC provides assured quality leading to programme and cost certainty and increased productivity. Safety is enhanced, with the reduction of working from height, while gaining environmental benefits due to the reduced number of deliveries made to the site together with less waste and embedded energy.

Whilst progress has been made, Christian Charles explained some of the issues still facing MMC and the hurdles that still need to be overcome:

• Firstly, he highlighted the issue concerning the HGCRA (Housing Grants, Construction and Regeneration Act 1996) and whether a contract to supply, or supply and install, falls within or beyond the jurisdiction of the Act. There are a number of potential pitfalls in the wording of the HGCRA that modular construction can, and often does, fall foul of.

• A second issue concerned the applicability of warranties and guarantees, particularly with regard to new build homes and organisations such as the NHBC. Companies that manufacture off-site are more akin to manufacturing as opposed to construction and, as

such, warranties such as those offered by the NHBC may not apply or be supported by the supplier.

• A further concern was that the traditional approach for payment of works upon completion does not work for off-site manufacture when a significant proportion of the cost will be required to be paid before the goods are delivered to site; careful vesting and cashflow contractual provisions are pertinent.

• Finally, it was observed that procurement may need to change and that the standard forms, as they are drafted at the moment, are not fit for purpose to deal with the new working methods and the risk transfer associated with it.

Chair of the seminar, DGA’s Richard Jenkinson, summed up the event by saying “…the opportunities are there but some significant hurdles require to be overcome.”

Finally, the 2020 SmartMarket report concerning the American construction industry which is experiencing the same issues as the UK, entitled “Prefabrication and Modular Construction 2020”, states that “while major advances have been made in both prefabrication and modular construction…, many of the underlying drivers and benefits of these approaches remain powerfully consistent”. Unsurprisingly the report identifies that the greatest growth in MMC will be in building types in which it is already established, such as health care facilities, hotels, residential and education, however low rise offices, schools and public building could all benefit as well.

From personal experience on a recent hospital project, the contractor opted for the use of precast components in lieu of in-situ works, as a value engineering option, to support both the programme and cost. It transpired that this was an option that the client accepted and was one of the reasons the contractor won the project.

While not the potential holy grail it promises to be, MMC can provide significant advantages to the industry if contractors and stakeholders are prepared to grasp the opportunity with both hands. However, there needs to be a shift in mindset from all involved within the construction process. If these challenges can be overcome then MMC has much to offer the industry.

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The sub-contract was an amended JCT Design and Build Sub-Contract, which included a bespoke payment mechanism whereby CIMC would be paid by reference to the achievement of agreed milestones (the Milestones). The Milestones were as follows:

• Milestone 1: 20% deposit payable on execution of contract.

• Milestone 2: 30% on sign-off of prototype room by Park Inn/Key Homes/Bennett in China.

• Milestone 3: 30% on sign-off of all snagging items by Park Inn/Key Homes/Bennett in China.

• Milestone 4: 10% on sign-off of units in Southampton. Milestone 5: 10% on completion of installation and any snagging.

A dispute arose during the manufacturing phase as to whether the units complied with the sub-contract. However, in order to avoid missing its shipping slots, CIMC agreed to ship the units to the UK.

After the units had been delivered to site, CIMC carried out further works and Bennett carried out certain fit out works. In the event, Key Homes went into liquidation during the installation phase and Bennett gave notice to suspend the sub-contract works. The project was subsequently abandoned.

AN ADEQUATE MECHANISM?

Following suspension, a dispute arose as to CIMC’s entitlement to further payments under the sub-contract. At the time of Key Homes’ insolvency, CIMC had delivered the units to site and installation works had commenced. However, Bennett denied liability to pay CIMC in respect of Milestones 2, 3 and 4 on the basis that the units were defective and therefore those Milestones had not been achieved.

CIMC argued that the contractual payment mechanism did not comply with the Act. Accordingly, CIMC sought payment pursuant to paragraphs 2 – 4 of the Scheme, which provides an entitlement to interim payment on a valuation basis.

CIMC argued that Milestones 2, 3 and 4 were deficient in three principal respects:

• The “certifier issue”: Milestones 3 and 4 require “sign off” to be given by one (or possibly all) of three parties, namely Bennett, Key Homes and/or Park Inn. Neither Key Homes nor Park Inn were party to the sub-contract and had not been appointed to act as contract administrator;

• The “criteria issue”: Milestones 2, 3 and 4 require Bennett and/or a third party to “sign off” in circumstances where the criteria for “signing off” the units was vague and uncertain;

PAYMENT IN CONSTRUCTION CONTRACTS: WHAT CONSTITUTES AN ADEQUATE PAYMENT MECHANISM?

CHRISTIAN CHARLES

Senior Associate, Fladgate LLP

The Housing Grants, Construction and Regeneration Act 1996i (the Act) includes a number of mandatory provisions which apply to payment terms in all construction contractsii. Central to this is the requirement in section 110(1) that all construction contracts must provide an “adequate mechanism” for determining:

a) what payments become due, and when; and

b) the final date for payment of any sum which becomes due.

If a construction contract does not provide an adequate payment mechanism, the terms of the Scheme for Construction Contracts (the Scheme) will apply to the extent necessary to ensure compliance.

However, whilst the statutory requirements in relation to payment and pay less notices has generated a significant amount of case law, there has been relatively little judicial consideration of the requirement for an “adequate mechanism” and the application of the Scheme in cases where the contractual payment terms do not comply with the Act. The recent decision of the Court of Appeal in Bennett (Construction) Ltd v CIMC MBS Ltdiii, therefore, provides some welcome guidance for parties and their legal advisers, although a number of questions remain.

BENNETT V CIMC – BACKGROUND

Bennett was appointed by a developer, Key Homes, as main contractor for the construction of a new Park Inn hotel in Woolwich. In turn, Bennett entered into a sub-contract with CIMC to design, supply and install 78 prefabricated modular bedroom units. The units were to be manufactured at CIMC’s factory in China and then shipped to the UK for installation.

i As amended by Part 8 of the Local Democracy, Economic Development and Construction Act 2009.

ii As defined by sections 104 and 105 of the Act.

iii [2019] EWCA Civ 1515

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THE COURT OF APPEAL’S DECISION

Bennett appealed the decision on two grounds:

• Issue 1: Milestones 2 and 3 complied with section 110(1) of the Act; and/or

• Issue 2: If Milestones 2 and 3 did not comply with the Act, the provisions of paragraph 7 of Part 2 of the Scheme should apply instead.

The Court of Appeal allowed the appeal on both grounds.

On Issue 1, the Court of Appeal held that Milestones 2 and 3 did provide an adequate payment mechanism. In reaching its decision, the Court decided that:

• The requirement to provide “sign off” was to be viewed objectively. In other words, if the sub-contract works had reached a stage where it could be said that a Milestone had been completed, then liability to pay had crystallised in respect of that Milestone.

• The only relevant “criteria” was whether or not the works complied with the contract specification. This was an objective test and the criteria was not too vague or uncertain.

• There was also no “timing issue”, as the liability to make payment crystallised when the relevant Milestone was objectively completed. Moreover, the Courts would expect parties to adopt “business common sense” as regards the arrangements for invoicing and payment.

Whilst it was not strictly necessary to consider Issue 2, the Court of Appeal considered it appropriate to do so given the wider importance of the Scheme to the construction industry as a whole.

The Court of Appeal confirmed that it would have allowed the appeal on that basis as well. Whilst acknowledging that Part 2 of the Scheme is badly drafted, the Court of Appeal considered it possible to apply those provisions in a way which achieved a common sense result. That result was achieved through the application of paragraph 7 of Part 2, which would apply upon completion of the relevant Milestones. In this way, the Court of Appeal was able to retain the essence of the Milestones which had been agreed by the parties.

FINAL OBSERVATIONS

It is clear from the judgment that the Court of Appeal was reluctant to reach a decision which would effectively rewrite the payment mechanism in its entirety. There was no question that the parties had agreed to milestone payments and the Court noted that its decision ultimately “does the least violence” to the parties’ agreement.

However, whilst that is an understandable objective, it also leaves a degree of uncertainty for cases where a similar issue arises in future. For instance, the Court of Appeal’s observation

• The “timing issue”: The sub-contract does not specify when the process of “sign off” was to take place such that there was no effective mechanism for determining when payments became due.

The dispute was initially referred to adjudication and the Adjudicator decided that the Milestones did provide an adequate mechanism for the purposes of section 110(1). CIMC then commenced Part 8 proceedings in the Technology and Construction Court (TCC).

THE FIRST INSTANCE DECISION

At first instance,iv the TCC agreed that Milestones 2 and 3 did not provide an adequate payment mechanism because there was both a “criteria issue” and “timing issue”:

• It was unclear what criteria had to be met before “sign off” would be given; and

• The sub-contract did not specify when “sign off” was required to be given.

However, the TCC did not agree that there was any issue with Key Homes and/or Park Inn being responsible for signing off the units, as it is not uncommon for third parties to play some role in the administration of construction contracts. The TCC also decided that there was no issue with Milestone 4, as the requirement for “sign off” for that Milestone was intended to denote that the units had been safely delivered to the UK.

In the circumstances, the TCC decided it was necessary to import the relevant provisions of the Scheme (namely paragraphs 2 – 4 of Part 2) which would replace the Milestones in their entiretyv. The upshot was that CIMC was entitled to interim payments on a valuation basis.

iv [2018] EWHC 2440 (TCC)

v [2018] EWHC 2222 (TCC)

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that it would expect parties to adopt “business common sense” to determine the arrangements for invoicing and payment where the contract is silent, is particularly surprising and leaves considerable scope for interpretation. It is also difficult to reconcile this flexibility with the Courts’ rigid approach to the enforcement of other parts of the Act, such as the requirement for strict adherence to the requirements for payment and pay less notices.

The Court’s application of the Scheme, and in particular its decision to apply the “catch all” paragraph 7 of Part 2 should apply, is also potentially problematic. It effectively takes all stage payments which are not linked to value outside the scope of paragraphs 2 – 4 (which expressly include stage payments). It is difficult to see how one could apply paragraph 7 in circumstances where a stage payment mechanism was deemed inadequate different reasons (for example if the criteria for achieving the milestone was insufficiently certain).

In summary, therefore, whilst the decision provides some welcome guidance on section 110(1) and the proper application of the Scheme, a number of questions remain. For that reason this case is unlikely to be the final word on the adequacy of payment terms in construction contracts.

DGA TRAINING SERVICES

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NEC3 & 4 ENGINEERING & CONSTRUCTION CONTRACT (AND SUBCONTRACT) ADMINISTRATION AND ASSESSMENT OF COMPENSATION EVENTS SEMINAR/ WORKSHOP

Overview

Notification and assessment of the time effect and cost of compensation events, for the purpose of a quotation or the Project Managers assessment, is a fundamental part of the NEC ECC and ECSC.

This one-day course (seminar and workshop) is presented by two experienced Directors of DGA who are frequently called to provide expert evidence with regards to delay, quantum or contractual advice on the NEC. The course considers the compensation events, notifications and quotations, demonstrating the change to the Prices, Key Dates and Completion date through to implementation of a compensation event, with reference to a mock/theoretical project, events, programme and Defined Cost.

UNDERSTANDING AND USING THE JCT STANDARD BUILDING CONTRACT AND DESIGN & BUILD CONTRACT 2016

Overview

The JCT Standard Building Contract and Design and Build Contract remain the two most frequently used contracts in the United Kingdom. In 2016, a number of changes to the previous editions of the JCT were published by the Joint Contracts Tribunal.

This one-day seminar is presented by experienced and dual qualified professionals. It will provide the delegates with a comprehensive understanding of the key parts of both contracts in order that they can understand each party’s liability and obligations. Reference is made to case law as part of explaining some of the provisions of the previous editions (and how this applies to the current editions) and operation of the contract.

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DGA GROUP

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DGA GROUP

EBRIEFINGMARCH 2020 MARCH 2020

ABOUT DGA PUBLIC COURSES

WHO SHOULD ATTEND?

The course is suitable for:

Quantity Surveyors

Commercial Managers

Planners or Contracts Managers of Contractors or Subcontractors

Architects

Designers

Contract Administrators, of all levels that desire obtain a firmer understanding of the terms of the contract and their practical application.

Price of each course £300 plus VAT per delegate

What’s included in the Price The presentation, slide handout, refreshments, CPD certificate

Locations, dates and times To be published shortly

WHAT TO DO NEXT?

If you are interested in hearing more about our forthcoming public courses, please email dgagroup@dga-group.com . Further details will be sent once dates and venues have been confirmed.

Terms & Conditions apply

DGA GROUP HEADQUARTERS

25 Eastcheap BIRMINGHAM Tel: +44 (0)121 698 2148

London MANCHESTER Tel: +44 (0)161 932 1222

EC3M 1DE NOTTINGHAM Tel: +44 (0)1332 638 061LEEDS Tel: +44 (0)113 337 2174

BRISTOL Tel: +44 (0)117 344 5023

Tel: +44 (0)203 961 5340 MAIDSTONE Tel: +44 (0)1622 673 021EDINBURGH Tel: +44 (0)131 357 4012

GLASGOW Tel: +44 (0)141 264 2315

UNITED ARAB EMIRATES SINGAPORE CANADA

Office 615 20 Anson Road 160 Quarry Park Boulevard SE Park Lane Tower #19-02 Suite 300 Al A’amal Street Twenty Anson Calgary Business Bay Singapore 079912 Alberta United Arab Emirates Singapore Canada

T2C 3G3

Tel: +971 4 437 2470 Tel: +65 62916208 Tel: +1(403) 279-1603

HONG KONG AFRICA AUSTRALIA

6/F Luk Kwok Centre Building 2 Level 39

72 Gloucester Road Country Club Estate 385 Bourke StreetWan Chai 21 Woodmead MelbourneHong Kong Sandton Vic 3000

South Africa Australia

2054Tel: +852 3127 5580 +27 (0)11 258 8703 +61 (0)3 8459 2189

MORE INFORMATION

If you would like to find out more details about any of the subjects covered in this Ebriefing please contact DGA Group through the contact details below or at DGAGroup@dga-group.com

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DGA GROUP

EBRIEFING MARCH 2020

DGA GLASGOW69 BUCHANAN STGLASGOWG1 3HLTEL: +44(0)141 264 2315

DGA LEEDSCARRWOOD PARKSELBY ROADLEEDSLS15 4LGTEL: +44 (0)113 337 2174

DGA MANCHESTERPETER HOUSEOXFORD STREETMANCHESTERM1 5ANTEL: +44 (0)161 932 1222

DGA NOTTINGHAMREGUS HOUSE, HERALD WAYPEGASUS BUSINESS PARKEAST MIDLANDS AIRPORTCASTLE DONINGTON,DE74 2TZTEL: +44 (0)1332 638 061

DGA BIRMINGHAMONE VICTORIA SQUAREBIRMINGHAMB1 1BDTEL: +44 (0)121 698 2148

DGA BRISTOL1, THE FRIARYTEMPLE QUAYBRISTOLBS1 6EAT: +44 (0)117 344 5023

DGA London Headquarters

25 Eastcheap

London

EC3M 1DE

T: +44(0)203 961 5340

E:dgagroup@dga-group.com

DGA MAIDSTONEVINTERS BUSINESS PARKNEW CUT ROADMAIDSTONEKENTME14 5NZTEL: +44 (0)1622 673 021

DGA UNITED KINGDOM

DGA ENDINBURGH1 LOCHRIN SQUARE92-98 FOUNTAINBRIDGEEDINBURGHEH3 9QATEL: +44 (0)131 357 4012