In this article, we look at a recent adjudication where we successfully defended a ‘smash and grab’ adjudication on behalf of our client. This article provides a brief overview of the case, and not all the facts of the dispute are provided.
The Background
This project was to construct a number of warehouse units in the north of England. It was entered into under a bespoke ‘Heads of Terms Sub-Contract Agreement’. However, the developer and ground remediation sub-contractor found themselves in dispute over the sub-contractor’s submitted ‘final account’.
The Dispute
To begin with, the parties entered into a poorly drafted ‘Sub-Contract Agreement’. As is often the case, failure to spend a little more time and effort setting up the project correctly, led to difficulties later down the line.
At the point where the works were only around 60% complete, the sub-contractor submitted its ‘final account’ and walked off-site. Despite the works being incomplete the submitted final account was for the full amount of the lump sum fixed contract price. It also included various variations and dayworks.
The employer rejected the sub-contractor’s final account. Their basis for doing so was that no final account was due as the sub-contractor had not completed the works. Consequently, the employer did not issue a payment notice or pay-less notice to the sub-contractor.
As a result, a six-figure quantum dispute arose. The sub-contractor employing its statutory right, referred the dispute to adjudication. Accordingly, the employer appointed Nexus as party representative to defend it in adjudication.
The sub-contractor issued its referral. The primary argument of the referral was that the employer had not issued its payment notice or a pay-less notice as it was required to by the Construction Act. This type of adjudication is more commonly known as a ‘smash and grab’ adjudication.
Because of this failure, the sub-contractor argued that the employer should pay the full amount identified in the final account application. They also included payment of interest, and payment of the adjudicator’s fees and expenses.
In response, Nexus set out to provide a robust defence of the employer’s position. The employer put forward that the final account application relied upon by the sub-contractor was not a valid application. Further, Nexus argued that the value claimed by the sub-contractor was not the correct value of the works.
The Decision
The Adjudicator agreed. They decided that the sub-contractor’s ‘final account’ application was invalid and did not comply with the Act. As a result, the Adjudicator decided that the sub-contractor’s claim failed and 100% of his fees were to be paid by the sub-contractor.
Setting out his reasons, the Adjudicator stated that:
“The Claimant’s Default Payment Notice…did not comply with the Act in that it did not give the amount which the Claimant considers to be due…and for that reason it was not a valid Default Payment Notice and consequently it did not establish a notified sum as referred to in S.111…” (Emphasis added)
Takeaways
The Construction Act provides that in the absence of a payment notice from the payer (the person from whom the payment is due) to the payee (the person to whom the payment is due), the payee may issue a ‘default payment notice’. Depending on the terms of the contract, a payee’s application for payment may become the default payment notice. Alternatively, the payee may give the payer a notice at any time after the date on which the payer’s payment notice was required to be given by the contract.
If you are a submitting an application for payment or a default payment notice, you should ensure that your application or notice complies with the requirements of the Construction Act. This means you should always ensure that your application notice specifies:
- the sum that the payee considers to be or to have been due at the payment due date in respect of the payment (the ‘notified sum’), and
- the basis on which that sum is calculated.
Don’t come a cropper. Ensure that any application for payment you submit is a valid application as required by the Construction Act.
Need Support?
If you are concerned that your project is heading to dispute or adjudication, allow us to assess your claims and entitlement and advise on your next steps, or be your representative and guide you through the adjudication process.
Visit our dispute services page to find out more or contact us directly.
