Michael Gerard of Michael Gerard and Courges certifiers to take stock of their responsibilities andensure that they maintain vigilance in these difficult times
We all have to tread more carefully when times are hard and money is tight. Whilst the effects of the UK recession are being felt across almost every sector, construction companies are experiencing the fallout of the downturn particularly sharply. Despite some glimmers of optimism in the media with reports of slight house price rises and the greatest number of mortgage offers for some time, it seems certain that trading in the construction industry will be tough for many months to come.
Inevitably, the continuing construction depression will lead to more company failures. This means that, as a certifier, you must ensure utmost vigilance when valuing the contractor’s works and in issuing timeous ‘sections 110 and 111’ notices under the Housing Grants, Construction and Regeneration Act (the Construction Act).
A time for extra vigilance
You could argue that vigilance in this area is always important, and you’d be right, but it is all too easy to let things slide and become slightly complacent when times are prosperous and work is coming thick and fast. So, be honest with yourself and think about the process that you go through when considering applications made by contractors. How much detail do you really go into when assessing an application? Do you:
- reconcile every claimed item against the physical work?
- physically measure all items claimed?
- only value those variations which have written instructions?
- check for defects?
- check that the materials and workmanship accord with the contract specification?
- stock take the claims for materials on site?
- carefully consider claims for extensions of time and ensure the cause and effect has been demonstrated?
- separate claims for loss and expense from any extension of time awarded and only certify once the loss and expense has actually been proven?
A risky business
Over certification means that a contractor will receive payment in excess of its entitlement and as such, has always been poor practice. However, in these tough times, continuing with such a practice carries far more risk simply because contractors are more likely to become insolvent. However, if you are aiming to minimise the impact of a contractor’s insolvency, ascertaining the correct value is only part of the process.
In addition to the physical valuing of a contractor’s work, the certifier must be fully aware of the requirements for issuing payment and withholding notices under the contract, such notices of which are also mandatory under the Housing Grants, Construction and Regeneration Act.
The payment notice
The payment notice, which is referred to under section 110 of the Construction Act, is simply a notice that the certifier should issue within the stipulated time stated under the contract. It requires the certifier to state at each interim payment stage how much is intended to be paid and the basis for the calculation. However, important as the payment notice undoubtedly is, it is the withholding notice that it is crucial to get right.
The withholding notice
The withholding notice is absolutely essential as without one, there is no right to deduct monies against the value of the works. This includes damages for delay which can run into tens, and sometimes hundreds of thousands of pounds.
In the absence of a payment notice, it remains incumbent on the contractor to prove that the monies claimed were actually due (see the judgement of SL Timber Systems Ltd v Carrillion Construction Ltd ).
However, this is different to withholding notices. It is established authority that in the absence of a withholding notice, even where served out of time or deficient in any way, it will not be valid (see the judgement of Rupert Morgan Building Services (LLC) Ltd v David Jervis and Harriet Jervis ). In Rupert Morgan Building it was held that: ‘It requires the client who is going to withhold to be specific in his notice about how much he is withholding and why…’ (emphasis added). This is clear authority for the view that, in the absence of a withholding notice, the amount due must be paid.
In summary, when certifying:
- Inspect the project and reconcile against the contractor’s valuation.
- Only value those items that are contractually due.
- Avoid including any payment ‘on account’.
- Know the timing of the valuations and the respective notices.
This is a weighty responsibility in these troubling times – and an important process to get right. Moreover, there are currently so many economic factors affecting the construction industry that are out of our control that it makes sense to keep on top of the issues that you can control. So, maintain your vigilance and review your practice to ensure that it is always spot on – it’s more important now than ever.