“1.1 The Subcontract Price shall be determined by the application of the rules in this schedule. 1.2 The SubContract Price shall be as set out in Annex E3 - Target Cost Summary.”
“Preliminary Issue As a Preliminary Issue in this Adjudication I was asked by the parties to decide on whether the contractual arrangements as to adjudication were compliant with theHousing Grants, Construction and Regeneration Act 1996 . The reason for this preliminary determination was essentially a matter concerning my powers, as adjudicator, to award costs. If I were to find that the contractual adjudication provisions were non-compliant with the Act, the Railtrack Rules would not apply and the statutory scheme (The Scheme for Construction Contracts) would be deemed to control the adjudication procedure and thereby restrict certain powers that the contractual scheme made available to the adjudicator. In my letter to the parties dated19 November 2002 , and after hearing oral arguments from the Parties and reading various submissions on this matter, I determined that the Railtrack Rules were not Act-compliant and therefore the current adjudication would be conducted under the statutory scheme (the Scheme). … Hearings The two hearings were arranged in which the Adjudicator was given an opportunity of hearing the parties and thereby forming a better understanding the competing positions. The first hearing took place on Friday13 December 2002 at 46 Essex Street. In addition to the adjudicator, this hearing was attended by the following: From Jarvis: Alan Robson Esq Peter Slater Esq Peter Mills Esq of Eversheds From Alstom: Chris Fossey Esq Phil Taylor Esq Nabeel Ikram Esq of Lovells … The second hearing took place on Monday16 December 2002 at Evershed’s offices in Queen Victoria Street, London at which the Parties, represented by leading Counsel argued before the Adjudicator issues concerning the terms of the unsigned contract and in particular whether this Contract contained what has become known as the pain-share/gain-share provision. Additionally, at the second hearing, other matters relating to the law pertaining to the parties’ entitlements and obligations were discussed. At the second hearing, apart from myself, were: For Jarvis: Alan Robson Esq Richard Ward Esq of Eversheds Peter Mills Esq of Eversheds Martin Bowdery QC of Counsel For Alstom: Chris Fossey Esq Neil Irving Esq Tony Marshall Esq of Lovells Nabeel Ikram Esq of Lovells Roger Ter Haar QC of Counsel The Issues The basis of payment under the contract was that Jarvis, as Subcontractor, would be paid by Alstom, the Contractor, in accordance with Schedule E of the Conditions of Contract as a target cost. In their words Jarvis would be paid what the works cost plus a management fee to cover the work undertaken by Jarvis in managing the works. It is the referring party’s case that Alstom had not complied with the Contract requirements in this regard. Particularly, Jarvis contend that Alstom failed to serve a Notice of Intention to withhold payment from Application 31 in the time prescribed bySection 111 of the Housing Grants, Construction and Regeneration Act 1996 and the Scheme for Construction Contracts 1998. Further, or in the alternative, Jarvis argue that Alstom failed to value properly Application 31 under the terms of the contract and alleged that a figure of£1,442,980 plus interest should be paid to Jarvis under the terms of the Contract. The referring party also alleges that, under Paragraph 2.4 of Schedule F of the Contract, Alstom was obliged within the same week of Application 31 to put to Jarvis any questions or queries provided with the application and only upon a failure by Jarvis to provide an adequate response to such questions or queries was Alstom entitled to exclude items from the Certificate as disallowed costs. In that Alstom failed to put to Jarvis any questions or queries in relation to information with Application 31 and within the same week of that application Alstom, by deducting this sum of almost one and a half million pounds, acted in breach of the Contract. The referring party also pleads that under the provisions of the Scheme at Section 110(3) of the scheme will determine a final date for making payment in the absence of the Contract specifying the same and that final date, in Jarvis’ opinion, is seventeen days after the date that payment has become due. BySection 111 of the Act , a party to a construction contract may not withhold payment after the final date for payment unless he has given an effective notice of intention to withhold payment and, by paragraph 10 of the Scheme, an effective notice must not be given later than 7 days before the final date for payment. In that Jarvis allege that Alstom failed to serve effective notice Alstom are not entitled to withhold payment from any amounts applied for by Jarvis. Finally, the referring party alleged that Alstom’s valuation fails to take into account the true value of the works and therefore represents a substantial under-valuation of the amount of payment to which Jarvis is entitled. Discussion Let me first remind the parties that we are currently in an adjudication, which, as I pointed out at the close of the second hearing, is an interim and provisional method of dispute resolution. In the time that I am permitted under the Housing Grants Construction and Regeneration Act, the degree of detail that can be investigated is limited. Furthermore, the time I have available to produce this decision document is exceedingly short (about 30 hours), due mainly to the late hearings held in this case. Consequently, my reasoning is brief although I assure the parties that I have given close attention and considerable thought to the matters in issue before formulating my decisions. Although I sincerely hope this decision will be the end of the matter between the parties, I am conscious that the final account has not yet been prepared and further adjudication or other means of dispute resolution may follow. I am also aware that my decision in this Sub-Contract dispute may have some influence ‘up the contractual chain’ even though adjudication decisions do not necessarily have to be followed by parties different from those contesting this reference. I will attempt to address each of the issues in turn, starting with what has become termed the pain/gain issue. [The adjudicator then dealt with the “Pain/Gain Issue” and the Burden of Proof Issue”] Housing Grants Construction and Regeneration Act Issues I was urged by Mr Bowdery to construe theHGCR Act 1996 in the spirit contemplated by the drafters – that is a statutory device that unlocks cash-flow (the construction industry’s life-blood) to a contractor/subcontractor. I can assure both parties that I am fully aware of the industry practices and the commercial mischief that existed prior to the Act. Let me begin this section by addressing the matter of the ‘amount or sum due’. Mr ter Haar tried most ably to convince me that the amount or sum due was the amount or sum that was certified and, as the provisions of the Act as to withholding notices applied to the sum due, if Alstom had actually paid the amount shown on the certificates there was withholding and thus no need for a withholding notice. He is correct in as far as he goes but his analysis stops short of what I consider to be a crucial element of this issue. In my view, and after reading Clause 2.4 and 2.6 of Schedule F to distraction, the amount due is the amount of the application minus only those items for which questions and queries have been raised within the stipulated period and for which no satisfactory response has been received. In other words, the amount due (on the certificate) is not necessarily what the certifier has stated on the bottom line if that certifier had acted in breach of contract. I believe this is the intent of the Act and I find support for my views when I read Section 111. Section 111(b) requires the paying party to state why monies are being withheld. The Act does not provide for such statements elsewhere. The applicant needs to know why its application is reduced by the certifier and therefore I believe the intent of the Act is that the withholding notice must reflect the difference between application and certificate – not between certificate and payment to be made. Reasons for this latter difference may be simply that the payer is impecunious and this is of small interest to the applicant albeit of consequence. The applicant cannot take steps to rectify the payer’s position. Whilst I admit the Act could be clearer, as Adjudicator I must construe the Act in a manner that gives business efficacy to the provisions and reflects what I consider to be the intent of the legislature. As alluded to above, I consider that questions and queries pursuant to Clause 2.4 should be specific. I do not consider that Clause 2.4 is satisfied simply because questions and queries on matters have been raised in connection with previous applications. Mr Bowdery’s point is well taken in that questions and queries raised on an earlier application may be partially answered (in the mind of the applicant) and thus would no longer be appropriate for later applications. I agree to an extent with Alstom in that it would not be necessary for a verbatim repetition of earlier questions and queries raised by not responded to. What I do consider necessary is for clear cross referencing to be made to those unanswered questions and queries raised earlier, for example, words such as: “Question 1: Please refer to page x of Alstom’s letter dated xx.xx.xx, in which paragraphs x and xx remain unanswered” would be adequate so long as paragraphs x and xx gave specific and focused questions and queries. In the present case and in response to Application 31 I find that the provisions of Clause 2.4 were not satisfied. No specific and focused questions and queries were raised with the same week as receipt of the application. Alstom should not, therefore, have reduced the sum applied for in producing Certificate 30 and having done so was in breach of the Contract. Certificate 30 was erroneous and should have reflected the exact sum that Jarvis had applied for. Clearly the retention as specified under the Contract (at this stage 1.5%) must be applied. This finding, harsh as it may appear to Alstom, is what I consider to be the effect of Clause 2.4 when properly and purposively construed. As a consequence, the analysis of the various reductions made to Application 312 (ie the discussions held on Friday 13th December) do not fall to be decided at this stage. As I mentioned in my recent letter to the parties, it would perhaps have been better for me to have determined matters in principle before embarking on the quantification arguments in detail, but being adjudication, time did not permit. As generally expressed above, I do hope that Messrs Taylor and Slater were able to acquire a valuable insight and better understanding of the opposing party’s position from the discussions and my questioning at that hearing. A further issue brought to my attention was the date for final payment. It was argued that the final payment provision was linked to the main contract and that this was insufficiently certain (in that it could be changed without reference to Jarvis) to satisfy Section 110(1)(b). The matter is important because withholding notices must be issued no later than 7 days before the final date for payment and the suspension provisions under S112 do not engage until the final date for payment has passed. Mr Bowdery urged me towards the default provisions under the Scheme at Paragraph 8(2) ie 17 days from the date that payment becomes due. Mr ter Haar took the view that the link to the provisions in the main contract was sufficiently determinate to be Act-compliant. The fact that the final date could be changed without reference to Jarvis was not fatal as to compliance. I have again attempted to construe the statute in a purposive manner and with my understanding of the intent of the Act in mind. I believe S110(1)(b) requires that the final date shall be a date that is embedded in the contract between the parties and is incapable of being changed absent consent of both contracting parties. Consequently, I am persuaded by Mr Bowdery’s submissions. I do not believe the draftsman meant that such final date could be changed unilaterally (possibly necessitating an action in damages from Jarvis under third party rights legislation). Accordingly, I do not consider that the Contract does satisfy S110(1)(b) and thus the parties have failed to provide a final date for payment. The default provisions of the Scheme thus apply and the final date for payment is 17 days from the date that payment becomes due. The last date for issue of a S111 withholding notice is thus 10 days after the date payment becomes due. [The adjudicator then dealt with “Interest” and “Extension of Time”] Summary of decisions Having considered all the evidence put before me and having listened to the parties in person and their legal representatives and based on the reasons set out in the discussion section above, I decide as follows. The Contract governing the contractual relationship between Alstom and Jarvis was a Sub-Contract, unsigned, excluding any provision for a pain share/gain share agreement. Upon receipt of Application 31, Alstom failed to provide questions and queries in accordance with Clause 2.4 of Schedule E5 and thus were in breach of the Contract by certifying a sum in respect of Application 31 less than that contained in the application (including retention). As a result of this breach I decide that Alstom should pay Jarvis the net sum of one million, four hundred and forty two thousand, nine hundred and eighty pounds (£1,442,980 ) plus interest calculated in accordance with this decision. Due account shall be taken by the parties of contractual retention. In addition to this sum, Alstom are to pay interest at 9% pa calculated in accordance with this decision. I decide that all payments calculated under this decision shall be paid within 21 days of the publication of this decision, namely by or before Wednesday 8th January (I have made due allowance for the Christmas break). After Wednesday 8th January, the interest on all payments outstanding at that time will be increased to 18% per annum, calculated daily and compounded quarterly. I find that the Contract did not contain or provide for an effective final date for payment and thus I decide the final date for payment shall be 17 days after the date that payments become due. Because of my findings associated with the HGCR Act, there is no need for me to discuss each and every item in the list of matters or alleged under-valuation as set out in Jarvis’ Scott Schedule. I am aware that Application 31 is not the final application under this Contract and thus the matters that were discussed at the meeting on 13th December may have to be reconsidered in detail in the future. If I am to understand that I have been selected as adjudicator for any further disputes concerning this Contract, the same matters may come to me for determination in the future and I will thus retain my notes and papers on the individual issues of alleged under-valuation pending further references. I hope, however, that my comments earlier in this decision document (as to how the parties could narrow their differences by proper dialogue) will be heeded and thereby minimise the need for further adjudication, etc. …….”
“Dear Alan REF: SUNDERLAND DIRECT – SIGNALLING INSTALLATION, TEST & COMMISSIONING & TELECOMMUNICATION Application for Payment No 32 We refer to your letter reference JAR/81362/ALSTOM/pls/05A07 dated the 27th May enclosing your Interim Application for Payment No 32. Unfortunately, despite our specific instruction, reference our letter Proj/CMF/CMF568/saw dated the16th May 2003 , requiring all correspondence to be forwarded to our offices at Borehamwood, the document was delivered to our Birmingham office. We have arranged that the document is forwarded onto the specific department at our Borehamwood offices, the anticipated delivery date is Monday2nd June 2003 . Pursuant to paragraph 2.4 of Schedule F of the Contract all applications shall occur on the Wednesday of the Railtrack reporting cycle, therefore with respect to the current application for payment, it will be registered from Wednesday18th June 2003 . In accordance with the aforementioned paragraph, we advise it is ALSTOM’s intention that all questions and queries in relation to the information provided will be presented to you during the week commencing18th June 2003 . In the mean time we attach herewith a copy of a letter we recently received from the Employer, the letter is self-explanatory and we invite you to comment upon the content.”
“Dear Chris RE: SUNDERLAND DIRECT I acknowledge receipt of your letter dated29th May 2003 and comment as follows. Our Application for Payment dated27th May 2003 Your letter suggests you will not be given consideration to our application for payment this month relying upon your letter dated 16th May which was not received in our office until the 22nd May and made no mention to the fact that your accounts office had moved. We delivered by recorded delivery our application for payment to your Birmingham Office on Tuesday 27th May, there is no acceptable reason why you should not consider this application. To suggest it would take you until Monday 2nd June to transfer this application to your Borehamwood Office is unacceptable and I am confident would be viewed as delaying tactics on your behalf. I will be away on holiday until Monday9th June 2003 , upon my return I will contact you with a view to agreeing either a further interim valuation or a final account, looking forward to speaking with you to avoid further adjudication on this contract.”
“Further to the letter of4th June 2003 , ALSTOM records that the questions and queries relating to Application 31, which were detailed within ALSTOM’s response to the Adjudication Notice, remain unanswered by Jarvis. For the avoidance of doubt, to the extent that these questions and queries have not subsequently been addressed in our letter of 4th June, we are still expecting Jarvis to provide satisfactory responses and Jarvis should consider this letter as the appropriate reminder of the outstanding action.”
“Further to our letter reference Proj/CMF/CMF/570/SAW dated the4th June 2003 regarding the above subject matter. Since receiving your letter reference hl/ar/Alstom/CF/Sn’lnd/020603 dated the2nd June 2003 we have not received any form of communication from your good self and/or your staff regarding this subject. Whilst we appreciate that you have been on a short vacation we had expected that some one in your organisation would have been dealing with this matter in your absence. We reiterate ALSTOM’s intent to resolve all outstanding issues in order to achieve an amicable settlement of the application as efficiently as is possible. Pursuant to the conditions of Contract ALSTOM are required to validate the content of your application and certify for payment within fourteen days of receipt. In accordance with the conditions of Contract if ALSTOM are unable to validate the content of the application due to a lack of relevant documentary evidence, those invoice values, which cannot be satisfactorily substantiated will be deducted from the application. To this end we request your confirmation that the information requested will be forthcoming. Whilst we appreciate such an exercise may place demands upon your staff we would nevertheless request that you notify us of the anticipated date when the substantiating information will be available in order that we can organise for the necessary staff to carry out the validation exercise. It was considered prudent to point out to you, at this time, Clause 38.4 of the Subcontract Special Conditions which states:- “No payment by the Contractor, Final Certificate or other certificate, or valuation under the Subcontract shall be evidence that the Subcontractor has performed his obligations under the Subcontract, or shall prejudice or affect any right to remedy of the Contractor”
“Further to our letter reference Proj/CMF/CMF/570/SAW dated the4th June 2003 regarding the above subject matter. In the course of carrying out the exercise to validate your current Application for Payment No 32 we have noted the following information is required before we are able to progress the exercise. To this end we have attached herewith the following schedules each provides a detailed commentary with reference to the information omitted from your application which is required before ALSTOM are able to complete the validation exercise. Appendix A:- Materials Schedule Appendix B:- Plant Schedule Appendix C:- Daywork sheets Appendix D:- Jarvis Subcontractor accounts In accordance with Clause 2.4 Schedule F of the Conditions of Contract it is incumbent upon Jarvis to provide sufficient information to ALSTOM in order that the application can be certified. The information provided is to enable Alstom to be reasonably certain that the works to which payment is sought have been properly and correctly valued. The information provided to ALSTOM in order to enable ALSTOM to be reasonably satisfied that the values within the application are true costs in accordance with the terms and conditions of contract. We note that since the receipt of your letter dated2nd June 2003 there has been no response from you and/or your staff in respect of any of the matters raised in connection with the certification process of your application number 32. It is of course Jarvis’s prerogative whether to provide the information requested, thus allowing ALSTOM to carry out its obligations under the Conditions of Contract, or not and in which case ALSTOM would have no other option but to certify the application as nil value.”
“We refer to your letter reference hl/ar/Alstom/Sn’lnd/180603 dated the18th June 2003 regarding the above subject matter. It is a little unfortunate that your letter has crossed with our latest request for information, whereby we have provided a number of questionnaire schedules, which raise specific questions regarding individual costs. We note your comments and set out below our response to each point raised. We reiterate ALSTOM’S commitment to settle this account as efficiently as possible. We believe that through constructive dialogue all matters can be resolved. Whilst we do not wish to enter into protracted correspondence, deluged by perpetual reiterations, it is important that we endeavour to eradicate misunderstandings and/or disagreements in order to settle all pending issues. Point 1: - Date of Application We do not concur with your opinion, for the following reasons:- firstly we had explained that your application had unfortunately been incorrectly address and thus was sent to the wrong address. The application was received at the correct address on Monday2nd June 2003 . Secondly, the Contract is most explicit in respect of the submission of Subcontract payment applications. We reiterate pursuant to clause 2.4 of Schedule F of the Subcontract agreement, applications for payment “shall occur on the Wednesday of the Railtrack payment reporting cycle” according to the payment cycle, set down in the Contract and which is incorporated into the Subcontract agreement, it had been established that, the next date for receipt of a payment application was the18th June 2003 . Furthermore notwithstanding ALSTOM’s contractual obligation in a bid to progress the validation process we have forwarded a number of requests for information and/or clarification on matters of your application and received only your letter in response. Point 2 We did not concur with your opinion that payment was due on the15th June 2003 . We reiterate that payment will be implemented in accordance with the conditions of Contract, at this moment ALSTOM are endeavouring to carry out the validation exercise as required under the terms of the Contract, we have requested information and or clarification and explained why such information is required. Point 3 We have no comment upon the abstract of the adjudicator’s commentary you have cited, however we believe it is pertinent to point out another of the adjudicator’s remarks, in the paragraph entitled “Burden of Proof Issue” it states:- Clearly it is for the applicant, in this case Jarvis, to provide sufficient information to the certifier, Alstom, to enable Alstom to be reasonably certain that the work for which payment is sought has been properly and correctly valued”
“38. The Adjudicator was wrong in so holding: (1) ALSTOM’s obligation was to pay such sum as might be certified under the machinery of Schedule F of the Sub-Contract: they paid all sums so certified and accordingly did not withhold any sum due under the Sub-Contract within the meaning of Section 111 of the Act; (2) Further or alternatively, by reason of the matters referred to at paragraphs 32 to 36 above Jarvis were not entitled to the sum claimed in Payment Application No 32 which accordingly was not a “sum due under the contract” within the meaning of Section 111 of the Act; (3) Further or alternatively Jarvis was and is not entitled to more than£10,238,432.66 as the Subcontract Price under the Sub-Contract. As Jarvis had already been paid more than that sum no further “sum was due under the contract” within the meaning of Section 111 of the Act. (4) Further or alternatively if it was necessary for ALSTOM to serve a withholding notice, they satisfied that obligation by sending a letter dated2 July 2003 (ref proj/CMF580/CMF/saw).”
“I have again attempted to construe the statute in a purposive manner and with my understanding of the intent of the Act in mind. I believe S110(1)(b) requires that the final date shall be a date that is embedded in the contract between the parties and is incapable of being changed, absent consent of both contracting parties. Consequently, I am persuaded by Mr Bowdery’s submissions. I do not believe the draftsman meant that such final date could be changed unilaterally (possibly necessitating an action in damages from Jarvis under third party rights legislation). Accordingly, I do not consider that the Contract does satisfy S110(1)(b) and thus the parties have failed to provide a final date for payment. The default provisions of the Scheme thus apply and the final date for payment is 17 days from the date that payment becomes due. The last date for issue of a S111 withholding notice is thus 10 days after the date payment becomes due.”
“If, contrary to paragraph 32, the Railtrack cycle does not apply, this was a case falling within paragraph (1)(a) and/or paragraph (1)(b) of the scheme. ...”
“…it is common agreement between Alstom, Jarvis and the Adjudicator that that luridly coloured schedule has got absolutely nothing to do with the payment procedures for this contract.”
“The parties are free to agree how long the period is to be between the date on which a sum becomes due and the final date for payment.”
“Subcontract Price shall be determined by the application of the rules in this schedule." Clause 1.2 said: The Subcontract Price shall be as set out in Annex E3 - Target Cost Summary." Thus the Subcontract Price was precisely the moving target which Alstom said it could not be. The "Target Cost Summary" was adapted from the main contract with references to the “contractor” being treated as references to the subcontractor and references to “employer” being substituted by “contractor”
"The contractor shall pay the subcontractor for the subcontract works and the total of the sums payable shall constitute the subcontract price. The sums payable shall be calculated in accordance with the provisions of schedule E - Prices, Rates and Charges - and paid in accordance with provisions of schedule F - Terms of Payment."
“the entire sum payable under the construction contract in respect of the work”
“an amount equal to the value of any work performed in accordance with the relevant construction contract during the period from the commencement of the contract to the end of the relevant period ….”