JCT Design and Build 2016 Section 4: Payment

The most immediately noticeable change to Section 4 is the attempts that have been made to simplify it.

How the Contract Sum is adjusted is made much more straightforward and applications for payment are simplified so that it now makes no difference whether alternative A or B is used in ascertaining the gross valuation.

The section is also now more logical and follows more closely how events actually unfold in practice.

For anyone using JCT for the first time, the amended version will involve much less of a learning curve. For the rest of us, who have been used to the quirks of JCT, it will take a bit of getting used to but in the long run it will be easier to follow.
There is more to the changes than just simplification. Some important changes are hidden away and are potential traps for the unwary. This article highlights some of them.

Monthly due dates

There is a new defined concept of an Interim Valuation Date, which applies to both alternative A and B. The first Interim Valuation Date is inserted into the Contract Particulars (or if no date inserted, it is the Date of Possession) and subsequently the same date in each month after that up to the due date for the final payment, thereby providing for the monthly payment cycle to continue after practical completion.

The monthly due date is stated to be 7 days after the relevant Interim Valuation Date, but JCT deals with the position if the Contractor’s Interim Payment Application is received by the Employer after the Interim Valuation Date. Where that happens, the due date is postponed until 7 days after the date of receipt by the Employer of the Interim Payment Application.

Final date for payment - calculating when a pay less notice must be served

The final date for payment of both Interim Payments and the final payment becomes 14 days from the due date. Previously the final date for payment of the final payment was 28 days. This change is important because it affects the calculation of when a pay less notice, in relation to the final payment, has to be given. It shortens the time period by 14 days.

Loss and Expense

The changes to loss and expense are quite widespread and impose much greater responsibilities on both the Employer and Contractor.

A Contractor who wants to claim loss and expense now “shall” notify the Employer as soon as the likely effect of a Relevant Matter on regular progress or the nature and extent of any loss and expense arising from deferment of possession becomes (or should have become) reasonably apparent.

Previously the position was that the Contractor “may” give notice. The use of the word “shall” makes it a requirement.

Contractors also have to provide, either with the notification or as soon as reasonably practicable: 

• Their initial assessment of loss and expense and any further amounts likely to be incurred. This is a new obligation on the Contractor 
• Information as is reasonably necessary to enable the Employer to ascertain loss and expense. While there was previously an obligation to provide this information if the Employer asked for it, now the Contractor has to be proactive and provide it whether the Employer has asked for it or not.
• Updates on a monthly basis until all information reasonably necessary has been provided.

This places much greater obligations on any Contractor wanting to claim loss and expense.

There will no doubt be debate as to whether the obligations now placed on the Contractor are a condition precedent. If the Contractor fails to give notice or provide the information on time, does he lose his right to claim loss and expense? Contractors would be wise to notify of any potential claim for loss and expense as soon as possible.

The Employer does not escape either. Within 28 days of receipt of the initial assessment and within 14 days of each update the Employer “shall” notify the Contractor of the ascertained amount of loss and expense in sufficient detail to enable the Contractor to identify differences between it and the Employer’s assessment.

These changes are no doubt intended to have the dual aims of preventing claims for loss and expense being raised late in the day as well as managing any potential issue as to the actual amount of loss and expense as soon as possible. These are laudable aims. It will be interesting to see how they are applied in practice.