A review of the basics of Commercial Management and current construction case law from the Technology and Construction Court.

1. NEWSLETTER PRIORY CONTRACT LAW LTD Issue 2
Construction
Law
Update
QUARTER 2
2015
IN THIS ISSUE
COMMERCIAL MANAGEMENT
The Start. When should a Commercial
Manager be appointed? To put it bluntly as
soon as possible. They should be involved in
the tender or at least have an understanding
of what has been tendered, the intended
margin for the project, how it has been
tendered and the risks being assumed by the
parties. They need to understand the form of
contract that the project is being procured
under and the terms and conditions
contained therein. They should be allowed to
discuss and negotiate some of those terms
and conditions, what damages apply, any
agreements made before contract
commencement and the limitations of entire
agreement clauses. On Utilities contracts an
understanding of the law appertaining to
Public Procurement, both EU Directives and
the UK Public Procurement Regulations
would be invaluable.
Managing. Once the contract commences
then the Commercial Manager should be able
to manage the contract. This means that
when the contract requires a condition
precedent to commence an action that this is
complied with, a good example is the FIDIC
time bar clause (20.1) and notification or the
NEC III clause 60.3 where it states, “If the
Contractor does not notify a compensation
event within eight weeks of becoming aware
of the event, he is not entitled to a change in
the Prices, the Completion Date or a Key
Date unless the Project Manager should have
notified the event to the Contractor but did
not”.
They should map out the key notification dates
and application submission dates, but most
importantly, they should do exactly what the
contract says. Too many times the parties set off
in commercial bliss where the submission of
notifications and applications are not as per the
contract, the parties fall out later down the road
and end up in dispute.
A good example of this was where a contractor
failed to submit notification as per FIDIC clause
20.1, the employer just accepted this and the
parties continued on their merry way. Near
completion the Employer declared that a large
amount of outstanding money was not due
because of a breach of clause 20.1 and therefore
they were not entitled to recover entitlement
under clause 20.5.
The contractor argued that the Early Warnings
submitted constituted notification, more by luck
than judgement the early warning was followed
by a letter which gave very sparse details on the
events and circumstances giving rise to the claim,
this was successfully argued as the required
notification.
Commercial Contracts – Acuity
After predominantly handling disputes that arise due to
the failure of one or more of the parties to follow the
terms and condition laid down in the contract, from
inception to completion, we have decided to review the
basics.
Case Law Reports
A number of disputes about payment have
ended up in the Technology and Construction
Court in recent months, as such this newsletter
concentrates on those cases.
COMMERCIAL AND CASES LAW UPDATE.
By Colin Tomlinson

2. CONSTRUCTION LAW UPDATE | Issue 2 2
Once the procedures are in place, the
Commercial Manager is then reliant on the
surveyors to report the figures on how the project
is doing, their responsibility is reporting of the
figures, not for the management of the project,
or should not be. The construction works lies
outside the duties of the Commercial Manager,
there is some direct input with procurement and
subcontractor payment with the surveyor
checking that the application from the
subcontractor are correct and that the work
invoiced for has been completed but the direct
responsibility for the Project margin lies with the
project manager.
How the work is reported lies with Project Control
and it is now not unusual to see the Earned Value
Analysis method being used, this gives accurate
reporting of the work complete and the project
expenditure and any cost variance that has
occurred.
The finishing role of the Commercial Manager is
the final account and any dispute that may have
occurred. If the commercial manager has
managed the commercial aspects of the project
correctly then the approval of the submitted final
account should be completed with relative ease.
As is usually the case this is not so, and disputes
arise about an assortment of items on very minor
particulars. This is where a good Commercial
Manager will have kept meticulous records and
correspondence detailing any variations, notices
or warnings. One important note to consider is
that when you start the project, do so as if it will
go to Adjudication, keep your correspondence
polite, correct and detailed, do not as in so many
cases be pedantic, rude or insult the employer’s
representative, you can imagine the inference the
Adjudicator will infer from the commercial
representative of a company telling the
employers representative exactly what they think
of them.
CASE LAW
Caledonian Modular Ltd v Mar City
Developments Ltd [2015] EWHC 1855
(TCC).
In Caledonian Modular v Mar City Developments
Mr Justice Coulson declined to enforce an
Adjudicator's decision where the employer had
failed to serve the requisite payment notices but
where the contractor's application for payment
was found to be invalid. In this case the
contractor had submitted 15 applications, one at
the end of each month, during the project. Upon
submission of the 15th application a payless
notice was issued by the employer, as a
consequence very little was paid in response to it.
In the interim, the parties commenced final
account negotiations. Approximately a week
after the valid payless notice was served, the
contractor submitted further payment
substantiation and requested that the payless
notice be revised. When the employer queried
the status of the submitted documents, the
contractor confirmed they were "an update of the
account" the employer did not issue a further
payless notice. Consequently the contractor
initiated an adjudication asserting that the
documents constituted a 16th application for
payment which was due in full as no payless
notice had been served.
The Adjudicator decided for the contractor, on
the basis that the further documents were an
"early" 16th application, as a consequence the
employer had to pay GBP 1.5 million to the
contractor. The employer refused to pay and
the case came before Mr Justice Coulson for
enforcement, he had "no hesitation" in
rejecting the claim. He noted that the
Adjudicator had not considered the merits of
the contractor's claim, and that one of the
"baleful effects" of the amendments to the
HGCRA had been to increase the number of
claims from contractors relying on an
automatic right to payment where the
employer had failed to serve notices on time.
Mr Justice Coulson commented that if
contractors wished to benefit from the
provisions they needed to submit applications
with "proper clarity".
This decision provides some comfort to
employers that contractors will not be able to
engineer what Mr Justice Coulson described as
a "wholly undeserved windfall" in this way, and
also reminds contractors of the importance of
submitting payment applications in a clear and
straightforward fashion.
Henia Investments Inc v Beck Interiors
Ltd [2015] EWHC 2433 (TCC).
The commercial administration of a
Construction Contract can be quite difficult, the
contractual procedures are not always
straightforward, mistakes occur and, when
relationships break down, and parties often use
errors by the other side to get an "easy win".
Background
Henia Investments Inc ("Henia") appointed
Beck Interiors Ltd ("Beck") to carry out
construction and fitting out works under the
JCT Standard Building Contract without
Quantities 2011.
The payment process under the contract was:
Not later than seven days before the due
date, Beck could issue an Interim Application
setting out the sum it considered would
become due on the due date
The due date was the 29th of each month
FAST FACTS
Adjudicators Fees
For general information the
following are the last five
Adjudicators rates by nominating
body, primary profession and
hourly fee that PCL have managed
in 2015:
Tecbar Barrister - £230 hr
CIC Barrister - £275 hr
RICS QS - £210 hr
CIC Civil Eng. - £200 hr
CIC Solicitor - £250 hr

3. CONSTRUCTION LAW UPDATE | Issue 2 3
Interim Certificates were issued by the
Contract Administrator not later than five
days after the due date. These set out the
sum the Contract Administrator considered
was due on the due date
The final date for payment was 28 days from
the due date. Henia had to pay the sum set
out in the Interim Certificate before this date.
If there was no a valid Interim Certificate,
then Henia instead had to pay the sum set
out in the Interim Application
If Henia wanted to pay less than the sum in
the Interim Certificate / Interim Application, it
had to issue a Pay Less Notice. This had to be
issued not later than three days before the
final date for payment.
Mr Justice Akenhead noted that the parties
had failed to follow the specific terms of the
contract in regards to payment, again a
commercial necessity to ensuring the parties
do not end up in this situation.
The dispute centred on payment numbers 18
and 19. And the facts are:
Beck issued Interim Application 18 on 28
April 2015 (six days late) and applied for a
net sum of £2,943,098.95 for the period to 30
April 2015
The Contract Administrator issued Interim
Certificate 18 on 6 May 2015 (one day late). It
showed a net sum payable to Beck of
£226,248.95
Beck did not issue an Interim Application 19
The Contract Administrator issued Interim
Certificate 19 on 4 June 2015 at 00:03 hours
(three minutes late). This showed a net sum
payable to Beck of £18,893.53
Henia issued a Pay Less Notice on 17 June
2015 (which was in time). This was based on
Interim Certificate 19 and deductions of
liquidated damages of £373,751.05. It stated
that £0 was due in relation to Interim
Payment 19.
The questions put before Mr. Justice
Akenhead were:
1. Was Beck's Interim Application 18 valid?
and
2. Was Henia's Pay Less Notice valid?
The Judgment
The Interim Application
The Contract allowed Beck to submit an
Interim Application setting out the sum it
considered would become due on each due
date (which was the 29th of each month).
However, Beck's Interim Application 18
indicated the works applied for were "Valued
to 30/04/15".
On this basis, Mr Justice Akenhead held that
Beck's Interim Application was invalid. The
Contract only allowed an application based
on a valuation of the works on either 29 April
or 29 May and as a consequence the
application submitted on the 30 April was not
valid.
Mr Justice Akenhead did not comment on the
timing of Beck's Interim Application which
was six days late, However, the Courts have
clearly shown lately that they will interpret
such provisions resolutely, most recently in
Caledonian Modular Ltd v Mar City
Developments Ltd [2015] EWHC 1855 (TCC)
and Leeds City Council v Waco UK Ltd [2015]
EWHC 1400 (TCC).
The Courts will show exception where there
has been a course of previous dealing
showing that the parties have varied the
provisions, for example by allowing
applications which are three-four days late.
The Pay Less Notice
Mr Justice Akenhead’s decision on Interim
Application 18 meant the dispute over
Henia's Pay Less Notice was no longer
pertinent. The entire contractual mechanism
had broken down, as there was no valid
Interim Application or Interim Certificates no
interim payment was due. Nevertheless, Mr
Justice Akenhead did go on to consider the
parties' arguments in relation to the Pay Less
Notice.
If Interim Application 18 had been valid,
Henia would have been required to pay the
sum in that application (as there were no
valid Interim Certificates), subject to the
effect of Henia's Pay Less Notice.
Beck argued that a Pay Less Notice allowed
Henia to pay less than the sum in the Interim
Certificate only on the basis of cross claims –
setoff. Therefore Beck was entitled to the
difference between the sum in its Interim
Application 18 (£2,943,098.95) and the
liquidated damages claimed by Henia
(£373,751.05).
Henia contended that, as well as including
any cross claims, it was also entitled to put
forward its own valuation of the works in its
Pay Less Notice. In this case, Henia's
valuation was based on the late Interim
Certificate 19 (which valued the work at
£18,893.53). Its claim for liquidated damages
far exceeded this and therefore no sums were
due to Beck.
Mr Justice Akenhead agreed with Henia. He
held that the contract required Henia to serve
a Pay Less Notice if it intended to "pay less
than the sums stated as due". There was
nothing in the wording to suggest this was
limited to cross-claims.
Henia could therefore, as part of a Pay Less
Notice, put forward its own valuation of the
works.
For More Information
Contact:
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enquiries@priorycontractlaw.com
0044 8452 60 61 05
or
ctomlinson@priorycontractlaw.com
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