Intention of the Act
Rupert Morgan Building Services (LLC) Ltd. v David & Harriet Jervis [2003] Adj.L.R. 11/12 Lord Justice Jacob reminds us that the purpose of interim certificates and the statutory notice regime (under the Act) was to protect the builder’s cash flow position. The intention of the Act is quite clear; the basic requirement for a payment notice is to ensure that the payee knows at an early stage of the payment cycle, the amount which he can actually expect to receive, together with the basis upon which that amount has been calculated. The aim is to make clear at an early stage, any differences between the parties regarding the amount “due”.

By giving the payee that knowledge, he should then be in a position to start adjudication proceedings to challenge the assessment of the amount “due” relatively quickly, if he disagrees with what is in the payment notice.

Lack of Sanction
We have seen the purpose of an s110 notice (“payment notice”) which requires construction contracts to provide for the giving of a detailed build-up of the payer’s opinion of the amount due for each interim payment. It has been suggested that here is where a ‘flaw in the logic’ is exposed, ‘there is no sanction against a payer for failing to issue a notice in accordance with the contract unless the contract itself provides a redress.’ Indeed this seems to be the case, where the Act tries offer a certain payment structure with transparency in mind, but fails to offer an incentive for effective enforcement or sanction for lack of. Some may say that the ethos of the Act should have still have been followed where its purpose is clear, commercial reality however has proved otherwise.

‘Adequate Payment Mechanism’
What constitutes an “adequate payment mechanism” was considered in Maxi Construction Management Ltd. v Mortons Rolls Ltd. (Outer House of the Court of Session, Lord MacFadyen, unreported 7 August 2001). There a party purported to make an application for payment under what they called ‘Application Number 10’; however the court decided that it was not an application for payment at all but was simply an application for agreement of the Contractor’s valuation. In any event, as it did not specify the basis on which it had been calculated, the purported notice did not comply with Paragraph 12 of the Scheme in Scotland.

Therefore a payment provision that does not provide a clear timescale for dealing and resolving issues is therefore inadequate, but Lord MacFadyen does not offer any guidance as to test which could be applied in order to determine whether a payment mechanism is adequate or inadequate.


Lack of Guidance
In analysing the payment provisions of the act under sections 110 and 111, it is clear that one must distinguish between the “due” date for payment and  “final date for payment”, yet neither term is defined in legislation.

Furthermore section 110 of the Act provides that every construction contract shall provide an “adequate mechanism” for determining what payments become due under the contract and when; In summing up the legislation in a House of Lords debate Lord Lucas (26th February 1996)  said “this legislation requires that payment should be defined in terms of amount and date.” Failing further guidance one must turn to the contract to determine when monies become “due” which is where the Act fails. This lack of clarity means that it was left up to the courts to interpret the Act and its intention, and subsequently struggled to find consistency in their decisions.