JCT Intermediate Building Contract 2011 - what's new?

Significant changes - Payment provisions

Fixed due dates for payment

Perhaps the most significant payment-related change of the 2009 Act was to prevent a construction contract from defining the time when a payment will be due under it by reference to the giving to the contractor (or to the person to whom the payment is due) of a notice which relates to what payments are due under the contract. A contract that purports to do that will not provide an ‘dequate mechanism' within the meaning of the Act: Construction Act 1996, s.110(1D), so that the scheme for construction contracts will apply.

In consequence of the new payment provisions, the IBC no longer defines dates of payments primarily by reference to interim payment certificates, but by reference to fixed dates. The payment provisions now refer to ‘due dates’ of interim payments.

The provisions relating to payments by the employer operate as follows (clause 4.7):

  • up to practical completion interim payments will be due on fixed monthly dates;
  • the parties may agree the first due date (clause 4.7.1); if none is specified the first due date will be one month after the site possession date;
  • subsequent due dates up to practical completion will be the same date in each month, or the nearest business day;
  • after practical completion:
    • the first subsequent interim payment will be due on a date not later than 14 days after the date of practical completion;
    • thereafter interim payments will be due at intervals of 2 months on the specified date; and
    • a payment will be due on the date of expiry of the period for rectification of defects or, if later, the date of issue of a certificate of making good.
  • the final date for payment of an interim payment shall be 14 days from its due date (clause 4.11.1)
  • the payment mechanism set out above is subject to any agreement between the parties as to stage payments (clause 4.7.1), and the parties may still make provision for advance payments and bonds (clause 4.6).

Payment notices

The changes introduced by the 2009 Act continue to require a payment notice to be given not later than 5 days after the due date of the payment to which it relates. The purpose of the payment notice is to specify the sum that is due at the payment due date, and the basis on which that sum is calculated. The major change is that where a construction contract requires the payment notice to be given by the paying party or a specified person (e.g. a contract administrator), and he defaults in doing so, the party due to receive payment has a statutory right to serve his own payment notice (Construction Act 1996, 110B(2)).

In those circumstances, if the contract permits or requires the receiving party to serve a notice before the paying party is required to serve his payment notice and the receiving party has done so, that will be treated as his payment notice if the paying party defaults in serving one (s.110B(4)).

A payment notice is necessary even where the sum due under it is zero (Construction Act 1996, s.110A(4)). The sum specified in the payment notice (whether served by the paying or receiving party under these provisions) constitutes the ‘notified sum’ that must be paid unless the payer is able to lawfully withhold payment (s. 111(1),(2)).

Certificates continue, therefore, to have prime importance in defining what sum needs to be paid. The manner in which these provisions are catered for in the new IBC, is as follows:

Interim certificates and applications

  • the architect/contract administrator must issue an interim certificate not later than 5 days after each due date. The certificate will state the sum that they considers to be due at the due date and the basis on which that sum has been calculated (clause 4.7.2)
  • the contractor may still issue a payment application (interim application) to the quantity surveyor, not less than 7 days before each due date (clause 4.10). One significant change in relation to such applications is that if the quantity surveyor disagrees with the contractor’s application they are not expressly required to submit a statement identifying the area of disagreement.

Employer’s default in issuing certificates

  • If an interim certificate is not issued (meaning that the employer’s agents will be in default) the following applies (clause 4.10):
    • If the contractor has made an interim application, that application will constitute his interim payment notice;
    • If the contractor has not made an interim application, they may give an interim payment notice to the quantity surveyor stating the sum that they consider to be due to them at the due date to which it relates. It must include details of the basis on which that sum has been calculated. This notice may be given by the contractor at any time after the time that the architect / contract administrator was required to issue an interim certificate (i.e. from 5 days after the due date of the payment to which it relates). The final date for payment will be modified slightly.
  • A failure to issue an interim certificate is no longer expressly defined as being a dispute or difference (clause 1.11, which is presumably intended to reflect the fact that the receiving party can issue his own payment notice). It seems possible that notwithstanding this amendment a failure to issue a notice could in fact give rise to a dispute or difference. The Construction Act 1996, s. 111(8) anticipates that after service of a payment notice an aggrieved party may refer a dispute or difference to adjudication, and dictates what effect the adjudicator’s decision will have on the notified sum.
Payable sum
  • Unless a pay less notice is given by the employer (as to which, see below), the sum to be paid by the employer is:
    • the sum stated in the interim certificate (clause 4.11.2); or
    • if an interim certificate has not been issued but the contractor has given an interim payment notice (or is deemed to have done so as set out above), the sum stated in it (clause 4.11.3)

Pay less notices

As stated above, the starting point is that the paying party must pay the sum notified in a payment notice. The payer may, however, give the payee a notice of the payer's intention to pay less than that notified sum (Construction Act 1996, s.111(3)). As the 2009 Act replaced the concept of ‘withholding’ with that of ‘paying less’, these notices have come to be known as a pay less notices. This is simply change in terminology.

The effect of serving a valid pay less notice is that the sum specified in it becomes the notified sum that is payable (Construction Act 1996, s. 111(6)).

The new statutory provisions require a pay less notice to be given not later than the prescribed period before the final date for payment. The parties are able to agree what that prescribed period is. If they do not, the default provisions in the Scheme for Construction contracts will apply (Construction Act 1996, s.111(5)). The payment notice and the pay less notice must be separate and, as with payment notices, a pay less notice must be given even where the sum due under it is zero (Construction Act 1996, s. 111(4)).

The IBC introduces these provisions in the following way:

Sums due for payment, and deductions by the employer:

  • if the employers intend to pay less than the sum stated as due from them in the interim certificate or the interim payment notice, they must give notice in the form of a pay less notice. The notice must be given no later than 5 days before the final date for payment (clause 4.11.5).
  • where a pay less notice is given, the employer is required to pay on the final date for payment, not less than the sum stated in that notice (clause 4.11.5).
  • where the employer intends to deduct liquidated damages for non completion, a further notice (under clause 2.23) must be given in addition to the pay less notice.
  • Pay less notice can in principle also be given by the contractor (for example where sums become due to the employer under advance payments).
  • the contents and form of a pay less notice are prescribed (clause 4.12)

Mechanism for final payments

Similar payment and computation provisions apply to the final contract sum, as they do to interim payments. They operate as follows:

  • The architect or contract administrator must issue a final certificate (clause 4.14). It will indicate the adjusted contract sum, the sum of amounts already paid to the contractor pursuant to interim certificates and interim payment notices and, consequently, the balance due to the contractor.
  • If there is default in issuing a final certificate, the contractor may give a final payment notice stating the sum that he considers to be due and the basis on which it has been calculated (clause 4.14.6). The final date for payment will be modified slightly.
  • In the usual case, the due date for payment will be the date of issue of the final certificate or, if it has not been issued, the expiry of the contractual period in which it ought to have been (clause 4.14.3).
  • The final date for payment will be 28 days from its due date (clause 4.14.3).
  • The party due to make a payment pursuant to the final certificate or final payment notice may issue a pay less notice indicating a sum that he intends to withhold. This needs to be served not later than 5 days before the final date for payment (clauses 4.14.4; 4.14.6.3). A sum, being not less than that stated in the pay less notice, will be payable before the final date for payment (clause 4.14.5).
  • A failure to issue a final certificate is no longer expressly defined as being a dispute or difference (clause 1.11, which is presumably intended to reflect the fact that the receiving party can issue his own payment notice).