In a recent adjudication and subsequent Court ruling the Contact Administrator’s (CA) failure to follow/understand the operation of the JCT contract clauses caused the Employer to lose their right to Liquidated damages.
In a recent adjudication and subsequent Court ruling the Contact Administrator’s (CA) failure to follow/understand the operation of the JCT contract clauses relating to Liquidated and Ascertained Damages (LADs) caused the Employer to lose their right to recover LADs. The CA had invalidated the Employer’s LAD claim by the issue of a partial extension of time (EOT) to the contractor.
Octoesse LLP (O) employed Trak Special Projects Ltd (T), under a Standard Form JCT Intermediate Building Contract (IC 2011) to construct a mixed residential and retail project in London. Completion was set for 29 September 2013. The timeline continued as follows:
- On 3 October 2014, the CA issued a Certificate of Non-Completion.
- On 13 February 2015, the CA issued a Certificate of Practical Completion.
- On 3 July 2015, T submitted a claim for an 18-week EOT.
- On 09 November 2015, the CA granted only a nine-and-a-half week EOT.
- On 16 May 2016 O issued a pay less notice deducting LAD’s of £89,250.
T instigated an adjudication where it was found O was not entitled to deduct LADs and T was awarded £59,991.83 plus interest against their EOT claim. O challenged this in the Technology and Construction Court seeking a declaration on the operation of the clauses regarding LADs in the contract (Clauses 2.22 and 2.23).
However the Judge concluded that the wording of clause 2.22 was clear:
“If the Contractor fails to complete the Works or a Section by the relevant Completion Date, the Architect/Contract Administrator shall issue a certificate to that effect. If an extension of time is made after the issue of such a certificate, the extension shall cancel that certificate and the Architect/ Contract Administrator shall where necessary issue a further certificate.”
The use of the word “shall” made this a mandatory obligation. Awarding an EOT cancels a certificate of non-completion already issued and so a further certificate would have been required, regardless of whether practical completion had been granted or not.
Where an Employer has given notice of his intention to deduct LADs but an extension of time is made and a further certificate of non-completion issued, then the Employer does not need to give notice of his intention again (clause 2.23 under the JCT standard wording).
“This highlights the importance of all parties especially those administering contracts paying close attention to the operation its clauses, even in standard form contracts”, Michael Murray, Associate Director – Claims & Technical, Brunel Professional Risks said: “This is an example of a small error causing a large loss, initially to the Employer but then one would expect to the Contact Administrator in due course. Such errors can occur in relation to standard form contracts but are more common where bespoke and one off forms of contract are used”.