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QS & Construction Law: The Interaction

Presented By

Conor Ahern, Trainee Solicitor

QS & Construction Law: The Interaction

Presented By: 

Conor AhernConor is a Chartered Quantity Surveyor with over 12 years’experience in the Construction Industry acting for Contractors,Consultants and Developers both in Ireland and the UK working oncontentious and non‐contentious matters

Experience and qualifications:

• BSc in Quantity Surveying

• MSc in Construction Law and Dispute Resolution at Kings CollegeLondon

• Graduate Diploma in Law at BPP (Conversion)

• Legal Practice Course at BPP (Ongoing)

• Member of Royal Institute of Chartered Surveyors (MRICS)

• Fellow of the Chartered Institute of Arbitrators (FCIArb)

Tel: 0207 167 6602

Email: conorahern@silverllp.com

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QS & Construction Law: The Interaction

Agenda

• Lump Sum and Remeasurement 

• Measurement Rules – SMM7 v NRM3

• Payment Schedules – Grove v Balfour Beatty 

• Payment Notices – Position after Grove v S&T 

• Smash and Grab Adjudication

Lump Sum And Remeasurement

Standard Building Contract (SBC) 2016 With Quantities:• Re‐measurement Contract• Work as set out in Bills of Quantities (BOQ) which areprepared by the Employer in accordance with theMeasurement Rules• Errors in the Employers Requirements including theproduction of the BOQ, for example an unstated departure,erroneous quantity or description, must be corrected andtreated as a Variation (Clause 2.13.2)• Errors in the Contractors Proposals or in the CDP Analysis, areto be corrected but shall not be treated as a Variation (Clause2.13.4)• Caution: commonly altered through Schedule of Amendments

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Lump Sum And RemeasurementStandard Building Contract (SBC) 2016 Without Quantities:

• Pricing Option A – Lump Sum Contract• Pricing Option B – Re‐measurement• No BOQ and the Contractor prices a specification and drawings• Errors in the Employers Requirements, for example drawings /specification / Schedules, which are not dealt with in theContractors Proposals, are treated as a Variation (Clause 2.14.1)• Errors in the Contractors Proposals, for example erroneousquantities / rates / drawing omissions, are not treated as Variations(Clause 2.14.2)• Caution: commonly altered through Schedule of Amendments

Lump Sum And Remeasurement

Standard Building Contract (SBC) 2016 With Approximate Quantities: • Re‐measurement contract• Approximate quantities are prepared by the Employer andthen priced by the Contractor which forms the Contract Sum• All work is remeasured prior to certification and theContractor is paid based on actual quantities of work carriedout• Difficulty with approximate quantities arise where quantitiesare not a reasonably accurate forecast of the work requiredand can result in Contract Rates being adjusted and a fairallowance for such difference in quantity must be made underClause 5.6.1.5

Conclude

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Measurement Rules• The JCT 2016 suite of Contracts has amended the MeasurementRules from Standard Method of Measurement for Building Works7th Edition (“SMM7”) to the New Rules of Measurement(“NRM2”)

• The Measurement Rules are incorporated into the Contractthrough Section 1 of the Contract Definitions as follows:Measurement Rules the RICS New Rules of Measurement – DetailedMeasurement for Building Works (NRM2), in the form published at theBase Date, unless otherwise stated in the Contract Bills

• The method of Measurement can be amended through aSchedule of Amendments, however use of NRM ought to beencouraged

Measurement RulesNew Rules of Measurement – Overview

• NRM 1 provides guidance on the quantification of building works for thepurpose of preparing cost estimates and cost plans. It is the ‘cornerstone’ ofgood cost management of construction projects – enabling more effective andaccurate cost advice to be given to clients and other project team members, aswell as facilitating better cost control. This information is based on historic costdatabase from previous projects (Estimating)

• NRM 2 is written mainly for the preparation of bills of quantities andquantified schedules of works, although the rules will be invaluable fordesigning and developing standard or bespoke schedules of rates (Estimating)

• NRM 3 gives guidance on the quantification and description of maintenanceworks for the purpose of preparing initial order of cost estimates. The rules alsoaid the procurement and cost control of maintenance works (Estimating)

Criticism – Know the price of everything…

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Measurement Rules• The aim of NRM was to provide more transparent pricinginformation which promoted a better understanding of pricing forclients and for Contractors to build a database of historic costinformation

• In my experience the use of BOQ’s has seriously fallen out offashion in recent years

• The rise of Design and Build (D&B) has certainly impacted this,and Employers and Contractors alike have embraced the D&Bapproach

• Employers favour the flexibility of specifications and drawingsrather than the strait jacket of a BOQ

• Contractors favour D&B due to pricing strategy

Payment SchedulesGrove Developments Ltd ‐v‐ Balfour Beatty Regional Construction Ltd (2016) EWHC 168 (TCC)

Background: 

• Grove Developments Ltd (“Grove”), was a property developerwhich had employed Balfour Beatty Regional Construction Ltd,(“Balfour Beatty”), to design and build a hotel

• The Parties had agreed a payment schedule for payments upto Contract Completion Date (July 2015)

• The Works were delayed and continued after the ContractCompletion Date. Balfour issued an interim valuation forAugust 2015

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Payment SchedulesGrove Developments Ltd ‐v‐ Balfour Beatty RegionalConstruction Ltd (2016) EWHC 168 (TCC)Decision:• It was deemed reasonably foreseeable that the omission of any suchprovision could have a commercial disadvantageous impact and theCourts will not interfere with a bad bargain• Interim payments for ‘any work’ under a construction contract, did notmean a party was entitled to Interim Payments for every single piece ofwork under the contract. Entitlement could only be realized at theagreed intervals, specified in the contract• The next payment due to Balfour was the final account as, under theContract, this was when the next payment became due

Beware of the Payment Schedule or Complete Interim Applications Section in Contract Particulars at Clause 4.8

Pay Less Notices

What are the elements of a valid Pay Less Notice?

Two Key elements (as identified in Housing Grants, Constructionand Regeneration Act 1996; Section 110A):

• Basis of Calculation• Sum which the Employer considers to be due

What happens if there is an error in the Pay Less Notice?

• Date / Application Reference – Past Experience

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Pay Less NoticesGrove Developments v S & T (UK) Ltd [2018] EWHC 123 (TCC)BACKGROUND: In 2015 Grove Developments Ltd engaged S&T (UK) Ltd to design andbuild a new Premier Inn Hotel at Heathrow Terminal 4. The contract incorporated the JCTDesign and Build Contract 2011 and the works were due to complete 10 October 2016,however, works were significantly delayed, eventually reaching completion on 24 March2017.

Shortly after practical completion had been achieved, but before the works had beencertified, the Contractor sent the Employer its interim application No.22, claimingpayment in the net sum of over £14m. The Employer responded with its Payment Noticewhich valued works in the net amount of £1.4m. Shortly thereafter the Employer emailedthe Contractor with its pay less notice stating its intention to deduct liquidated damages,as a result of which the Employer considered sums due as at the date of the pay lessnotice totalled £0.

The Contractor maintained that the Employer's pay less notice was non‐compliant on thebasis that the Employer had not attached a spreadsheet which included basis ofcalculation information. The Employer had issued the spreadsheet under a previous payless notice and the calculation remained unchanged in application No.22

Pay Less NoticesIssues A and B – The Pay Less Notice

Decision

In considering previous authorities on this point, Coulson J dismissed S&T'sarguments that Grove's Pay Less Notice had failed to specify the amount due.

It was said that the question of whether a Pay Less Notice is compliant is a matter of"fact and degree". Coulson J also clarified that though there had been a "hint" inprevious authorities that an Employer's Pay Less Notice might be construed moregenerously than a Contractor's interim application, there should not be a difference inapproach.

Arguments from S&T were dismissed that posed hypothetical situations that mightarise from a finding that a Pay Less Notice could be compliant where a breakdownwas not attached. The Judge dismissed these "fanciful factual scenarios" inconcluding that "on the facts of this case, the reasonable recipient would haveknown precisely what sum was being deducted and the basis of its calculation"

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‘Smash And Grab’ Adjudication

What Is A ’Smash & Grab’ Claim?

• In essence a ‘Smash & Grab’ claim is made by a Contractor who acts onan Employer’s failure to issue a valid Pay Less notice by claimingpayment of sums stated in the interim application for payment, withno regard to the Employer’s assessment of the validity of such claims

• Where a project has regular interim payments built in the risk issomewhat lessened by the Employer’s ability to ‘undo’ the effects ofan unjust claim in the next interim payment

• For this reason Contractors have become more likely to pursue thisstyle of claim in respect of the final interim payment, where theEmployer’s opportunity to ‘undo’ the claim via the final accountprocess may take months

‘Smash And Grab’ Adjudication

Grove Developments ‐v‐ S & T (UK) Ltd [2018] EWHC 123(TCC)2018 UpdateThis was a significant Judgement, ruling that the Employer was ableto challenge the amount due to Contractor as a result of a ‘Smash& Grab’, even if there was no valid Payment and / or Pay LessNotice

In his judgement he expressed his dissatisfaction with these typesof claims, stating “"I believe that [my conclusions] will strengthenthe system, because it will reduce the number of 'smash andgrab' claims which in my view, have brought adjudication into acertain amount of disrepute“

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‘Smash And Grab’ AdjudicationIssue C – The right to adjudicate the 'true value'

• The conclusions reached on this issue will be of the most interestto the construction industry and represent a change of approachfrom the previous authorities.

• Coulson J was clear that an Employer can commence a secondadjudication to seek the "true value" of the sum due where it hasfailed to serve an effective Payment Notice and/or Pay LessNotice to the Contractor's application. He gave six reasons for hisdecision

‘Smash And Grab’ Adjudication

1. The early case authority of Henry Boot Construction Limited v AlstomCombined Cycles Limited [2005] 1 WLR 3850 noted that it hadalways been open to the Court to revise architect's certificates andthis was authority for the Court's ability to consider the "true" valueof an interim payment application. Adjudicators have the samepowers

2. There was no "limitation on the nature, scope and extent of thedispute which either side can refer to an adjudicator" and as suchthere is no limit or restriction on the power of an adjudicator todecide this issue

3. A second adjudication to consider the "true value" would be adifferent dispute to the validity of a Pay Less Notice as decided in thefirst adjudication as it would address questions of valuation – noproblem with jurisdiction

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‘Smash And Grab’ Adjudication4. JCT distinguishes between ‘the sum stated as due’ which is the

amount in the application for payment and ‘the sum due’ which isthe correct payment amount (‘true value’). So long as the sumstated as due has been paid, the sum due can be adjudicated

5. As a matter of equality and fairness, the Employer's ability toadjudicate the true value of the application must be balanced withthe Contractor's ability to do likewise. It would be wrong to prohibitthe Employer from doing that which the Contractor can do

6. There is no justification for the previous authorities that distinguishthe Employer's ability to adjudicate where there is a final applicationas opposed to an interim application; there is no such distinction inthe JCT form and there is no difference between payment rightsand obligations in respect of interim payments and the finalpayment

‘Smash And Grab’ Adjudication

• This judgement represents a significant change in the Technologyand Construction Court's approach. Coulson J has endeavouredto bring clarity to the influx of potential issues raised by earliercases on "smash and grab" style adjudications and distinctionsbetween interim and final account applications

• The comments of the Judge have the potential to reduce theimpact of Contractors' claims for payment on the basis of failureto serve a Pay Less or Payment Notices now that there isauthority in support of the Employer's ability to quickly bring asecond adjudication for the true value of the same application

• Key Point – pay ‘the sum stated as due’ and then re‐adjudicateon ‘the sum due’

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CONCLUSION

QUESTIONS?

conorahern@silverllp.com

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