Payment under JCT 2016: Interim Valuation Dates – another date to remember?
Construction contracts are littered with dates governing the payment mechanism imposed by the Construction Act. Such dates include: due dates, dates for issuing payment notices and pay less notices, and also final dates for payment. The consequences of missing such dates can be severe, with the courts adopting a hard line in favour of an overarching objective of securing cash flow down the construction supply chain.
The new JCT 2016 contracts provide us with yet another date to remember – the Interim Valuation Date. What’s the deal and is it worth remembering?
What is it?
The Interim Valuation Date is built into all JCT 2016 contracts, subcontracts and sub-subcontracts. The JCT’s intention is to deliver a fairer payment system by synchronising how the payment cycle works throughout all tiers of their contracts. This move was no doubt influenced by the Government’s Fair Payment Campaign, which seeks to achieve standard industry payment terms by 2025, and an attempt by the JCT to position itself as a public sector contract of choice.
" If the parties fail to specify a date, the Interim Valuation Date will default to being one month after the Date of Possession. "
The Interim Valuation Date is to be agreed by the parties in the Contract Particulars and is intended to be the same date across all tiers of JCT contract on a project. The Interim Valuation Dates are the same day in each month, or the nearest business day in that month. If the parties fail to specify a date, the Interim Valuation Date will default to being one month after the Date of Possession.
How does it work?
The due date, which triggers the payment cycle for all interim payments, is now 7 days after the Interim Valuation Date. The final date for payment is 14 days from the due date, with pay less notices still needing to be served no later than 5 days before the final date for payment. Watch out though, as employers have a habit of varying these timescales to favour themselves in their amendments to the JCT contracts.
Under the JCT Design and Build Contract 2016 (which remains a contractor-led payment mechanism where an Interim Application is required), if an Interim Application is not received by an Interim Valuation Date the due date for that month shall become 7 days from the date when the Interim Application is actually received by the employer. As before, no later than 5 days after each due date the employer must give a payment notice stating the sum that he considers to be due at the relevant due date and the basis on which that sum has been calculated.
In comparison, under the JCT Standard Building Contact 2016 the architect/contract administrator must issue, no later than 5 days after the due date, an Interim Certificate (irrespective of whether a Payment Application has been submitted by the contractor by the relevant Interim Valuation Date). If no Interim Certificate has been issued by the architect/contract administrator and the contractor has failed to make a Payment Application by the Interim Valuation Date, the contractor may issue a payment notice, at any time after the last date for issue of the Interim Certificate, stating the amount due at the relevant due date and the basis on which this sum has been calculated.
What could go wrong?
The Interim Valuation Date is the nearest business day in the month to the date stated. This means the payment cycle is likely to hop around depending on which day it falls upon and will need to be carefully tracked by both the employer’s and contractor’s teams. Accordingly, the parties to the JCT contract will have to recalculate all subsequent dates in the payment cycle for that month to ensure that everything is linked to the revised due date. Failure to do so will put the employer and their professional advisers in danger of missing the key dates for issuing pay less notices and/or making payment by the final date for payment.
In addition, under the JCT Design and Build Contract 2016 any failure by the contractor to issue an Interim Application on time will affect the payment cycle as the due date becomes 7 days from the date when the Interim Application is actually received. This will also prevent it from being synchronised with the other contracts down the supply chain.
To state the obvious, the good intention of a fair payment process only really works if JCT contracts implementing a unified Interim Valuation Date are used across all tiers of the project. In reality, as you get further down the supply chain, the use of standard form contracts becomes less common, meaning that the purported benefits of the Interim Valuation Date may well fall away completely.