Payment schedule - pitfalls reaffirmed

Earlier this year we warned of the potential pitfalls arising from payment schedules incorporated within building contracts, following the decision of Grove Developments Ltd v Balfour Beatty Regional Construction Ltd [2016] EWHC 168 (TCC).

In this case the Court held that parties may agree a schedule for interim payments that does not cover the entire period during which the works actually take place. Such a schedule was held to be compliant with the Construction Act and the Court found that as the parties had failed to reach an agreement to extend the payment schedule, Balfour Beatty had no contractual right to further interim payments.

Balfour Beatty challenged this decision in the Court of Appeal. The grounds of appeal included the following:

1. That the contract as amended by the payment schedule expressly or impliedly provided for continuing interim payments to be made from the last date noted on the schedule up to the date of practical completion.
2. Alternatively, if there was no express or implied entitlement to continuing interim payments, the contract, as amended by the payment schedule, did not comply with the requirements of section 109 of the 1996 Act. Therefore the Scheme applied and conferred a statutory right to monthly interim payments from the last date noted in the payment schedule up to practical completion.
3. If Grounds (1) and (2) failed, then the parties' correspondence and conduct gave rise to a fresh contract for monthly interim payments.

The decision of the Court of Appeal was received earlier this month and Balfour Beatty's challenge was unsuccessful.

The Court held that the parties had no agreement as to how interim payment applications would be dealt with following the expiry of the Schedule and that the parties needed to know the dates with certainty.

The Court held that the payment schedule had provided an adequate mechanism for payment and therefore the Scheme did not apply. The Court also found that it was impossible to ascertain any new agreement from the parties' conduct following expiry of the Schedule.

So what does this mean for Contractors?

• They should ensure that there is wording in their contracts to deal with payment applications received beyond those anticipated in a payment schedule.
• If a sub-contractor issues a payment application beyond those allowed by the sub-contract they should consider whether this is valid. However, as ever, the safe manner of addressing this is to issue a payless/payment notice specifying that there is no contractual entitlement to payment at that stage.
• If a contract does not allow for any further payments than those stipulated and the contractor is looking to agree this, they should ensure any discussions come to a conclusion. The court is likely to find that being 'open to agreement' is not enough to conclude a legally binding contract.