Unlocking Payment Disputes – Payment Notices and Adjudication [Blog November 2017]

The construction sector has been notorious for late payment and non-payment for many years. So much so, that the government has intervened to regulate payment in this sector to a degree that it has not done in any other sector.

Whether you get paid is no longer a question of who can afford to chase the debt but whether you organise your invoicing / payment application procedure in accordance with your contract. So it is down to you.

If your contract does not state clearly when you are to be paid, then the legislation steps in. So there are no real excuses.

Why does it matter? It matters because if you follow the contract procedure you will always know what you are going to be paid, when and the basis for the calculation of what you are to be paid. If you don’t agree with what you are to be paid then you can dispute that in adjudication.

If the payer just doesn’t tell you what the payer is going to pay or tries to go back on what it stated it would pay without giving you proper notice you will be entitled to the amount you applied for.

The trick is to know the payment regime on your contract and to FOLLOW IT.

The best way of people avoiding paying you is if they can say that your application for payment is not valid or to claim that they have served a valid payment notice or a valid notice to pay less. So the content of your application for payment and the timing and content of the payer’s notices is key.

Just as there is a timetable for your application for payment there is timetable for the payer’s payment notice to be given or the payer to issue the notice to pay less.

So you need for each contract to set out the following key dates;

1)The date by which you must make an application for payment

2)The date by which the payer must issue a payment notice

3)The date by which the payer must issue the notice to pay less

4)The final date for payment

Your payment application must state the amount you consider due to be paid for the application and the basis upon which that has been calculated. You must send it before the last day for applying for payment. You must send it to the right place or email address.

 If your contract does not permit or require you to make an application for payment then you need to issue a default payment notice as soon as it becomes clear that the payer has not issued a payment notice. The default notice must state the amount you consider to be due for the valuation and the basis of the calculation.

If you do not receive a payer’s notice or a notice to pay less in the required timescale then you are entitled to be paid the amount of your application. The payer cannot argue over the valuation or try to deduct any money. 

If you do receive a payer’s notice and it is late, it is not valid. If you receive a notice and it does not show the amount due to be paid and the basis of the calculation, it is not valid.

 If you follow the procedure and check to see if the payer has, and he hasn’t, then you are in a strong position to secure payment. That is because the payer, unless poorly advised, will realise that if he has not followed the procedure the payer is obliged to pay. Also the payer will know that if he refuses to pay you can refer the matter to an adjudicator who can direct the payer to make payment.  The adjudication may take only a few weeks and does not involve lots of paperwork and expense.

Just showing the payer that there is no defence to your claim is often enough to get a sensible agreement to pay you. If the payer is just not paying, then using adjudication is a cost effective way of collecting the debt.

There is a sting in the tail to the procedure. If you do not make your applications on time with the correct detail or issue a default notice (where your contract does not permit or require you to make an application), even though you have done lots of work of very significant value, you may have no entitlement to payment.

So it is down to you for each job (contract) to diarise the key dates and to follow the contract process and to check that the payer does too. If your contract is unclear or just based on an oral agreement then take some advice and if necessary follow the legislative fall back known as the Scheme for Construction Contracts.

END

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Article published in Adjudication Society Newsletter Summer 2107 

Reinforcing the message – “pay now, argue later”

Tim Willis

The construction industry has become used to the mantra repeated in a number of cases, that the intention behind the Housing Grants Construction and Regeneration Act 1996 as amended (“the Construction Act”) is to give effect to a “pay now, argue later” regime.

The regime has been applied both in the context of the interpretation of the payment provisions under the Construction Act and also in the context of the court’s attitude to enforcement of adjudicator’s decisions.

Statements by the court to this effect can be found in numerous decisions.

The recent decision of Hutton Construction Limited v Wilson Properties (London) Limited [2017] EWHC 517 (TCC) (the Hutton Case) is a further reinforcement of that approach to the legislation.

In the context of the Hutton case, the principle of “pay now, argue later” is applied in a new context where there is a potential conflict between the commercial interest of a party who wishes to enforce an adjudicator’s decision and the commercial interest of the party who is dissatisfied with the adjudicator’s decision and seeks to use the Part 8 process as the mechanism by which the adjudicator’s decision can, in effect, be “appealed”.

The facts of the procedural steps taken in the Hutton case are perhaps an extreme example but the case gave the opportunity for Mr Justice Coulson to review the current guidance in the Technology and Construction Court Guide and the existing case law, in which the question of the relationship between the Part 7 and Part 8 proceedings had been considered by the courts. Following that review and in the light of the potential for the Part 8 process to become a mechanism by which the decision of an adjudicator could, in effect, be reviewed before enforcement, Mr Justice Coulson has issued new guidance with regard to the relationship between Part 7 and Part 8 in enforcement proceedings. In modifying the existing guidance he has given primacy to the doctrine of “pay now, argue later”.

The new guidance draws a distinction between those cases in which the parties are able to combine the competing desire to enforce an adjudicator’s decision with the desire for a final resolution of a matter that had been determined by the adjudicator. The argument in favour of finality is to avoid unnecessary cost and duplication of proceedings and in some cases there is a clear consensus that that is desirable. The judge contrasted those circumstances and the situation where there was no consensus as to the process by which these matters should be brought before the court. Mr Justice Coulson endorsed the current practice where the parties cooperate to agree the process but highlighted the difficulties that parties faced. In particular, the party seeking enforcement may not want an issue finally determined before it receives

the benefit of the Part 7 claim. The complexities in seeking to introduce the Part 8 application into an enforcement hearing under Part 7 are in many cases not easily resolved. In reviewing the case law, the judge referred to the practical difficulties facing not only the parties but the court. It is critical for the court to be aware of the requirement to combine competing processes from an early stage so that the directions, which in the context of a simple Part 7 enforcement application are based upon standard directions, can be modified to address the requirements of the Part 8 claim and also to allow the requisite time for hearing and deciding issues which are different from a straightforward adjudication enforcement application.

Where there is a good deal of cooperation between the parties from the outset, then the court has been able to respond to these additional requirements. Problems arise however in cases where there has been no such consent.

In particular, where there is no consent, the enforcing party wishes to receive the benefit of the adjudicator’s decision and is not interested in the final resolution of any matter decided by the adjudicator being determined either before or at the same time as the enforcement proceedings. The judge pointed out that for the party seeking enforcement that is entirely appropriate. As set out in the Caledonian Modular case, the fact that a party may consider that the adjudicator got it wrong is in 99/100 cases irrelevant to any enforcement application. If the decision is within the adjudicator’s jurisdiction and the adjudicator broadly acted in accordance with the rules of natural justice, such defendants must “pay now and argue later”.

The judge sets out a new test that will now override the guidance contained in the Technology and Construction Court Guide. The judge stated, “If the degree of consent noted in the authorities set out is not forthcoming then the following approach must be adopted”. The first requirement is that the defendant must issue a CPR Part 8 claim setting out the declarations it seeks or, at the very least, indicate in a detailed defence and counter claim to the enforcement claim what it seeks by way of final declaration. The court emphasised however that a prompt Part 8 claim is the best option.

Turning to the current guidance, there is some support in the current guidance for a more informal approach (see paragraph 9.4.3 of the Technology and Construction Court Guide), however that must now be taken to be superseded by the guidance given in the judgment.

The judgment sets out the necessary requirements in order to contest summary judgment on the basis of the Part 8 claim.

The defendant must be able to demonstrate that:

there is a short and self-contained issue which arose in the adjudication and which the defendant continues to contest;

that issue requires no oral evidence, or any other elaboration beyond that which is capable of being provided during an interlocutory hearing set aside for the enforcement; and

the issue is one which, on a summary judgment application, it would be unconscionable for the court to ignore.

The court gave examples of the sort of issue which might meet those requirements, such as if the adjudicator’s construction of a contract clause is beyond any rational justification, or that the adjudicator’s calculation of the relevant time periods is obviously wrong or that the adjudicator’s characterisation of a document as, say, a payment notice is on any view not capable of being described as such a document. The court suggested that in a disputed case, anything else would be contrary to the principles set out in Macob, Bouygues and Carillion.

The court also made clear that such issues could still only be considered by the court on enforcement if the consequence of the issue raised by the defendant was clear cut. Again the court gave an example using the case of Caledonian v Mar City in which it was agreed that if the document was not a payment notice, the claimant’s case failed. If however the effect of the issue that the defendant wishes to raise is disputed, it will be most unlikely that the court will take that issue into account on enforcement. Such a dispute or “arguable interleafing of issues” would almost certainly be fatal to a claim by the defendant that its challenges were properly brought within the limited exception. Again the court pointed to the practical difficulties where there is no consent, as any argument as to whether or not matters should be dealt with on enforcement, would itself require argument before the court. Given the time constraints of enforcement proceedings, the judge considered that it would be rare for the court to decide that such an issue could be raised as a defence to the enforcement application.

The judgment is a warning to those who have seen the development of the Part 8 process as a mechanism for challenging the decision of an adjudicator. The judge went so far as to say, “In my view, many of the applications which are currently being made on this basis by disgruntled defendants (and which are not the subject of the consensual process noted above) are an abuse of the court process.”

As an abuse of process, the judge was clear that a defendant who unsuccessfully raises this sort of challenge on enforcement will almost certainly have to pay the claimant’s cost for the entire action on an indemnity basis. However, this does not relieve parties seeking to enforce an adjudicator’s decision who are met with a competing Part 8 claim from all obligations to cooperate and comply with the overriding objective. If a claimant does not agree to the defendant’s proposal to deal with the issue on enforcement, but the court concludes that the issue does fall within the limited exception to which the court referred, it is the claimant who runs the risk of being penalised on costs.

The facts of the case are of interest in that the defendant was late in issuing its Part 8 proceedings and the correspondence and witness statements relied upon in the context of the response to the Part 7 enforcement application did not set out clearly the basis upon which the defendant objected to the enforcement proceedings. It was only when the Part 8 claim was provided that the claimant and the court were in the words of the judge, “given inkling as to the defendant’s stance”. However, it was not simply the dearth of information provided to the claimant and the court to allow the proper cooperation between the parties and timetabling with the court that was criticised by the judge. The judge also considered that the issues raised went beyond a discrete issue that would be determinative of the matters decided in the adjudication and stated “the points raised by the defendant endeavour to re-run the entirety of the issues in the adjudication. Indeed, on one view, the defendant seeks to raise and rely on other matters too, such as the earlier sequence of interim applications and how they were dealt with by the parties and the conversations referred to…”

The court therefore considered that on adjudication enforcement it simply could not deal with all the points and more raised by the Part 8 claim. Enforcement would be granted and the Part 8 claim heard at a later date (May or June 2017). On the broader question of whether or not it was unconscionable that matters raised in the Part 8 claim should not be addressed by the court in the context of the Part 7 proceedings, the judge pointed out that the central question as to whether the document described by the defendant as “a pay less notice” had been considered at length by the adjudicator, it was unlikely that the court would decide that it was in fact something else altogether. The court also relied on the fact that the adjudicator considered all the relevant issues carefully and decided them against the defendant, and in those circumstances, in the ordinary way the claimant is entitled to the fruits of that victory.

The judgment is a welcome clarification of an area of practice that has produced real difficulty for those seeking to enforce adjudicators’ decisions. The summary enforcement process is undermined by the opportunity for a disgruntled defendant to introduce a competing Part 8 application. There has been the potential for a disgruntled party to, in effect, negate the intention behind the Construction Act and the process by which a decision which is only binding on an interim basis nevertheless entitles the successful party to the fruits of its victory. The courts will be more alive to attempts to use the Part 8 process as “an appeal” and the burden will be firmly on those issuing Part 8 proceedings to demonstrate that they are appropriate or to run the risk of an indemnity costs order. The judgment is consistent with the general approach of the courts to support the adjudication process and to give effect to the “pay now, argue later” regime. In providing clarity to the parties and their representatives the judgment is to be welcomed.

Adjudication Society Newsletter

Summer 2017

Tim Willis

Article published in the Adjudication Society Newsletter 04/15

BIM Disputes – What are they and how will we resolve them?

This is the first of a series of articles in which I will explore the challenges that will arise from the implementation of Building Information Modelling (BIM) for those involved in dispute resolution. This is of particular interest to the adjudication community as it is feature of adjudication that it is the first port of call for most disputes in the construction sector which is the sector most involved in implementing BIM at the current time.

The articles will have to break the subject down and this first article is intended to give an overview of what is happening in the industry and then for subsequent articles to consider the implications in respect of a number of discrete areas of liability.

What do we mean by BIM?

Before leaping into the subject it is necessary to define some terms. Firstly, what do we mean by BIM. There is no single universally accepted definition. A definition I have used is that adopted by Royal Institute of British Architects (RIBA).

“Building Information Modelling is digital representation of physical and functional characteristics of a facility creating a shared knowledge and resource for information about it forming a reliable basis for decisions during its life cycle, from earliest conception to demolition.”

The fact that there are a number of definitions arises from the differing contexts in which the term is used. The UK has not been the first country to develop BIM and so much of our understanding and aspirations for BIM have their source in the US and Scandinavian countries. But we have introduced our own requirements.

BIM and Government policy

The definition must also be considered in the context of Government policy. In the Government Construction Strategy published in May 2011 the Government stated “Government will require fully collaborative 3D BIM (with all project and asset information, documentation and data being electronic) as a minimum by 2016.”

By July 2012 the Government was able to provide an update on the strategy;

The legal, commercial and insurance protocols for BIM are nearing completion; the structured digital data exchange format known as COBie UK 2012 has been prepared and a number of institutions including RIBA have been working with the Construction Industry Council (CIC) to develop BIM-enabled plans of work. A Publicly Available Standard (PAS), 1192-2:2012, which documents the delivery of BIM-enabled design and construction information, is undergoing public consultation with an operational version covering asset management and operation due for the end of 2012. Work on a comprehensive training strategy is underway along with general supply chain guidance.

Since the publication of the Construction Strategy in 2011, the following have been implemented:

  • A network of regional BIM hubs to act as the first point of contact for BIM advice to industry
  • The BIM Task Group website to provide precise and comprehensive BIM guidance
  • A standard for the information management of construction projects (PAS 1192-2)
  • A standard for the information management of the operation phase of assets (PAS 1192-3)
  • A BIM Technologies Alliance to foster collaborative development
  • BIM enabled digital plans of work prepared by the professional institutions such as the RIBA Plan of Work 2013
  • A Technology Strategy Board (TSB) Research Project for the development of a free-to-use digital tool kit that exploits these standards for BIM
  • An information exchange format selected this chosen information format was Construction Operations Building information exchange (COBie). COBie was selected as the container for non-graphical information and the reasons for its selection were pragmatic. It is cheap to implement with tools readily available and has forward compatibility with international open standards such as ISO 16739.

Much has been written about these documents and further reading is available. Two particular aspects are important from a legal perspective. As part of the guidance issued, the CIC in conjunction with the BIM Task Group published the CIC BIM protocol (“The BIM protocol”) and the guidance from insurers “Best Practice Guide for Professional Indemnity Insurance When Using Building Information Models”.

The BIM protocol is a document intended to regulate the duties and liabilities of those involved in the BIM process. The document also created a new and distinct role, that of “Information Manager” and an outline schedule of services was developed for that role. It was also suggested at that time that the CIC would publish an updated schedule of services to allow collaboration across disciplines and from project inception to management of a facility. The guidance from insurers suggests that implementing BIM to level 2 would not give rise to problems for the insurance arrangements of the industry. That is predicated upon the use of “federated models” where the authorship of information and control over its use or modification is defined or agreed to by its author. The guidance states;

It should also be stressed that this report does not consider the Level 3 BIM environment, which raises very different liability issues which will need further consideration. By way of explanation, by level 2 BIM we broadly mean that a “federated model” is being used, albeit in a managed 3D environment and perhaps with 4D construction sequencing and /or 5D cost information. Level 2 BIM requires each participant to develop their own model(s), which are then shared with the project model, with appropriate audit trails in place. It is the robustness of these audit trails and change control systems that gives insurers comfort. It should be noted that simply because two or more parties are working together, this does not mean that this extends into Level 3 BIM territory, provided that the resultant models are still “federated

The government has refined its target to aim for implementation of BIM level 2 by 2016.

BIM level 3 does not have a target date yet for implementation but there are more fundamental policy changes that have been co-joined with that ambition in the form of the Government’s “soft landings” policy that seeks to achieve reliability of information for transfer from the construction phase to facilities management and clear responsibility for the reliability of that information.

There are no strict definitions of BIM levels 2 and 3 but there are a number of working definitions.

PAS 1192-2 and PAS 1192-3 both use the graphic developed by Bew and Richards and PAS 1192-2 provides a list of “fundamental principles for Level 2 information modelling.”

Looking ahead at Government policy

Two key stages in the development of BIM to BIM level 2 remain to be completed;

Firstly, to facilitate the way in which users interact with the information contained in BIM models, these needed to be standardised. To achieve this the digital building blocks that are used to create virtual assets need, in turn, to be standardised. These building blocks are commonly known as ‘BIM objects’.

Secondly the schedule of services to allow multi-discipline collaboration from the inception of the facility to its whole life usage need to be completed.

In September 2014, NBS ( National Building Specification) part ofRIBA Enterprises Ltd, which is wholly owned by RIBA won the £1 million Innovate UK contract to take forward development of the Digital Toolkit for Building Information Modelling (BIM).

The award followed a two stage competition to examine the feasibility of the project, which will deliver the final two elements of the standards and guidance being provided by the Government. This free-to-use BIM toolkit will make available a digital plan of work and a classification system which incorporates definitions for over 5,000 construction objects at each of the delivery stages throughout the life of a built environment asset.

It is perhaps therefore worth considering what NBS has to say about BIM;

There are many definitions of Building Information Modelling (BIM) but it is simply the means by which everyone can understand a building through the use of a digital model. Modelling an asset in digital form enables those who interact with the building to optimise their actions, resulting in a greater whole life value for the asset. Through BIM the UK construction industry is undergoing its very own digital revolution. BIM is a way of working; it is information modelling and information management in a team environment, all team members should be working to the same standards as one another. BIM creates value from the combined efforts of people, process and technology. The UK Government’s Construction 2025: Industrial Strategy for Construction is targeting lower costs, faster delivery, lower emissions and improvements in exports to position the UK at the forefront of international construction. The UK Government’s Construction Strategy 2011 is a framework for a range of work streams, all of which contribute to the 2025 strategy. This framework forms the basis of the government’s BIM hypothesis: “Government as a client can derive significant improvements in cost, value and carbon performance through the use of open sharable asset information.” The objective of the Construction Strategy 2011 is to accelerate the adoption of BIM throughout the UK construction supply chain. The requirements by 2016 are for all centrally procured Government projects to be a fully collaborative 3D BIM (with all project and asset information, documentation and data being digital).

BIM is not just a Government policy

It would be a mistake, however, to consider BIM only in the context of Government policy.

The other context in which BIM is developing is driven by the supply side rather than the client. Indeed although Government policy has provided a catalyst and the Government as client is at the heart of the BIM strategy the client is largely absent from BIM as it is developing in practice. Clients generally do not have information requirements and are not yet making decisions about their facilities based upon information modelled in a new and different way. That has not stopped the supply chain. The supply chain has not waited for the client to catch up and is increasingly using the benefits of BIM to improve the construction process. The response from the supply chain is happening at a time when standardisation and many of the tools for collaboration are still being developed. Crucially the supply chain does not necessarily limit itself to BIM level 2 and neither does it take care to document the new process in the manner suggested by the BIM protocol.

AD HOC BIM

BIM is already being implemented as a collaborative process.

However certain fundamental issues are not addressed when BIM is implemented as a stand-alone process because of the failure to recognise that it is not separate and distinct from matters regulated in our standard contracts or in bespoke project documentation. The BIM protocol responds to this potential conflict between procedures, or absence of, documentation by requiring

  • firstly, that a protocol is put in place by the client,
  • secondly, that the protocol must be incorporated into bilateral contracts entered into by the parties with their supply chain and;
  • thirdly, that the protocol’s terms will take precedence over other terms in the bilateral contracts.

A central issue concerns the status given to information produced as part of a BIM process. If no protocol is put in place fundamental uncertainties arise between the delivery and processing of information in the traditional context and the new modelling processes and new information exchanges.

There are different approaches and there are circumstances where simply nothing is said in this regard.

For example NEC guidance “How to use BIM with NEC contracts” states that technical information concerning the BIM process should form part of the Works Information. The draft MOJ requirements state that information about the completed building will constitute part of the product alongside the building itself. The CIOB Contract for Use with Complex Projects guidance states:

“Where a Model is prepared as a Contract Document, the drawings are to be generated from the Model. Therefore for the purposes of identifying the consequences of inconsistencies between them, the Model must rank in priority above any Drawings included in the Contract Documents.211

Clause 2.2 in the BIM protocol provides “In the event of any conflict or inconsistency between a Model prepared and delivered in accordance with this Protocol and any document or information extracted from such Model, except where the information Requirements state otherwise, the Model shall prevail

A Model is defined as being “a digital representation of part of the physical and / or functional characteristics of the Project”

In a recent project I have reviewed, the contractor has spent many hours of its time and that of the supply chain, drafting a very detailed BIM execution plan which it has included alongside its standard subcontract documentation. But no reference has been made in the contracts to the status of these procedures or the information they produce. The process sits on the critical path for design development and yet no thought has been given to the implications for the supply chain if they fail to deliver.

Another significant issue that arises in ad hoc adoption is whether the practices adopted in the supply chain adhere to the picture of BIM level 2 that insurers have in mind when they suggest that BIM implemented to that level can be accommodated within existing insurance arrangements.

BIM and Dispute Resolution

In the following articles I will consider the implications of adopting the BIM protocol and other standard form approaches where the contractual status of the BIM process is addressed. I will also consider the challenges that will be faced in projects where a piecemeal approach has been taken.

BIM has the potential to change traditional structures and risk allocation in a very broad range of areas from building quality or performance to design, cost and programming.

The implications for those resolving disputes could be far reaching both in terms of the context in which traditional areas of risk are subject to disputes but also in terms of the evidence, both factual and expert, that may be required to resolve them. It is the contention of this article that just as the law has had to develop the rules against which the design process is evaluated and the acts / omissions of its participants are judged, the law will have to develop rules to regulate the liabilities and duties of participants in BIM.

Tim Willis

Tim is a member of the CIC West Midlands BIM Hub and has given presentations for the CIOB, Constructing Excellence and OPEN BIM.