Final certificates

One important effect of final certificates is that they can be conclusive as to certain matters. When the word 'conclusive' is used in this context, it usually means that the matter cannot be challenged or disputed in legal or arbitral proceedings or any other form of dispute resolution such as adjudication.

Whether a final certificate is conclusive of any matters, and if so in what circumstances, depends entirely upon the provisions of the contract entered into between the parties. It is therefore vital that every individual contract is considered on its own terms and, where there is doubt as to its effect, legal advice should be sought before any deadlines set out in the contract have passed.

Some contracts provide for the final certificate to be conclusive of certain discrete matters. For example, under the JCT Standard Building Contract 2016 the final certificate is conclusive evidence of the following:

1. That where the contract expressly provides for goods, materials or workmanship to be for the approval of the architect/contract administrator the goods, materials or workmanship were to his reasonable satisfaction.
2. That effect has been given to terms requiring an adjustment to the contract sum.
3. That all extensions of time due have been awarded.
4. That direct loss and expense has been reimbursed.

In other contracts, the effect of the final certificate is commonly described in more general terms. For example, it may be that the final certificate is stated not to be conclusive of any matters at all. Alternatively, the contract may provide that the final certificate is conclusive evidence that all the works have been completed in accordance with the contract.

Sometimes, and other than where the contract expressly provides for the conclusive effect of a final certificate, it is considered that an arbitration clause indicates that the parties intended the final certificate not to be conclusive, but rather determinable at arbitration (see Robins v Goddard [1905] 1 KB 294). However, whether this is actually the case probably depends upon the exact form and nature of the contract in issue. It is, in any event, unclear whether adjudication clauses are considered to indicate a similar intention of the parties.

Preventing the conclusive effect of final certificates 

A party wishing to prevent a final certificate becoming conclusive will generally have 2 tools at their disposal:

1. pay less notices; and
2. contractual terms (which generally require action, such as the commencement of legal proceedings or other formal proceedings, to occur within a designated time).

It is important to note that in many situations it is necessary to utilise both these options - the former to ensure any money is held back in the short term (mostly for cash flow purposes) and the latter to ensure that a long term challenge can be sustained.

Pay less notices

In some respects, a final certificate is very often just like any other payment certificate, in that it determines the sum due to be paid.

If the JCT 2016 Standard Building Contract (the ‘JCT 2016 SBC’) is taken, as an example, to show the adjusted final account sum, the amount previously paid and the balance to be paid. That balance to be paid may be payable by the employer to the contractor (which is more often the case) or may show the balance payable by the contractor to the employer.

The JCT 2016 SBC then goes on to say that if the party by whom the final payment is stated to be payable (which, as noted above, could be the employer or could be the contractor) intends to pay less than the stated balance due to be paid, he or she shall not later than 5 days before the final date for payment give the other party a pay less notice.

If a pay less notice is given then the amount to be paid is the amount stated in that pay less notice. However, if a pay less notice is not given, then the amount to be paid is the amount stated on the final certificate.

While the failure to serve a pay less notice may not be fatal to a party's ability to challenge a final certificate, provided other terms of the contract are complied with (for example, provided an adjudication/arbitration is commenced within the time period stipulated), it will almost certainly affect that party’s short-term cash flow as a party who fails to issue a pay less notice will have to pay over the sum certified until the final certificate is challenged in adjudication, arbitration or legal proceedings. 

Terms of the contract

Just as the matters to which the final certificate is conclusive are determined by the terms of the contract, so are the circumstances in which that conclusive effect can be avoided.

Some contracts may not make any provision for challenging the conclusive effect of a final certificate, but more commonly there will be provisions such as are present in the JCT 2016 SBC whereby the final certificate can only be challenged if legal and/or arbitral and/or adjudication proceedings are brought within 28 days after the date of issue of the final certificate. The stated period of 28 days does not apply to all contracts and subcontracts, and in respect of the JCT 2016 Standard Building Subcontract (for example) the time period for proceedings to be commenced is 10 days only.

It is absolutely vital that any such provisions are complied with and, where a party is in any doubt as to the contractual requirements needed of them, legal advice should be sought without delay.