Problem
I am a contracts manager for a main construction contractor. In January 2016, we started refurbishing a Birmingham office block. The project was straightforward and was supposed to end in December of the same year.
However, the construction was delayed and not completed until the end of March 2017 – around 13 weeks late. Most of the delays were our fault (sub-contractors let us down), but part of the delay was due to the client.
We met with the client at the end of 2016, and I stated that we would not claim for an extension of time with loss and expense if the client waived its claim for liquidated damages. They responded well and told us that it was a good idea. Both parties kept to this arrangement until we put in the payment application. The client’s agent certified the majority of our application, but we received a Pay Less Notice. It claimed our late completion meant they had the right to deduct the liquidated damages, as stated in the contract.
Can the client do this? Can we combat it?
Kim
Response
Hello Kim.
Unfortunately, you should have created a side agreement to legally bind your new arrangement. This side agreement would sit parallel to the main contract but essentially moves the timeline for completion. From your account of the meeting, it is unlikely that you could prove that you reached a binding agreement with the client and that there was a legal waiver to the right to claim damages or estoppel.
Your client, the employer in the building contract, has the right to issue the Pay Less Notice. The employer in a construction contract must issue a Pay Less Notice to set off sums against a payment.
If you would like to take action, you should follow these steps to challenge the Pay Less Notice.
Check its Validity
Providing the Pay Less Notice was issued on time and specifies the sum due at the date the notice is given and how that sum was calculated, then the Pay Less Notice is valid.
However, you may be able to challenge the Pay Less Notice’s validity. For example, if the contract is a JCT, the client must issue a notice of non-completion condition before deducting liquidated damages. You could also challenge the liquidated damages penalty if they are much higher than the actual or likely losses.
Negotiate the Notice
The best way forward is to provide the necessary evidence to demonstrate that you are not responsible for the entire delay and negotiate a formal agreement stating that each party is responsible for its own costs.
Challenge the Notice
If the client is unwilling to negotiate and the penalty would be higher than the cost of legal proceedings, you can challenge the Pay Less Notice. You can instruct construction dispute solicitors, like us, who will use a third-party arbitrator to judge the situation.
If you would like our support with your construction dispute, contact us and we can arrange a free, no-obligation consultation. Our friendly team will happily answer any questions about your legal needs.
This advice is intended to be a general guide only and should not be viewed as providing a definitive legal analysis.
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