This month, our experts tackle a trio of tricky issues relating to payment: the expensive consequences of mistakes, insolvency and delays

Bricking it over schedule error

I have submitted a brickwork schedule to a housing developer detailing the cost to construct flats on a particular development.

We are to construct one of the two flats in facework, the other in render. Unfortunately, we have submitted the schedule without making the adjustment for one of the flats being facework. The difference between the render and the facework is £6000.

Both I and the developer's project QS have acknowledged this error. However, the commercial manager of the developer says he has set his budget based on our schedule and so is not willing to adjust it. The schedule has been attached to a contract, which we have received but not yet signed. Where do we stand?

The real issue is whether there is already a contract between you and the developer and, if so, whether the brickwork schedule is incorporated into that contract. The acceptance of the brickwork schedule by the developer may amount to a contract, even though there is as yet no signed agreement. This is likely to be the case if the developer accepted the brickwork schedule without amendment and has acted in reliance on your price in dealing with third parties. It is even more likely if you have started the works. If there is no contract, then you are under no obligation to carry out the works at that price and should resubmit a schedule showing the correct pricing.

However, we will assume that there is a contract, which incorporates the brickwork schedule and that the works have already started. We will also assume that the pricing error did not come to light until after the contract was made.

There is a legal concept in the law of contract known as mistake. If a mistake is present it will nullify consent to the contract and render the contract void. In order for this to be proven, the mistake must be material to the formation of the contract, as the courts are reluctant to invalidate a contract where the parties appear to have agreed in the same terms on the same subject matter, even if both parties are mistaken. In addition, it should be a mistake that the other party, in this case, the developer, ought reasonably to know about and, finally, the mistaken party must not be in any way at fault.

In this instance, if the mistake was a pricing error on your part and was unknown to the developer, as appears to be the case, the courts will not consider this to be fundamental to the formation of the contract and will not intervene.

Unfortunately, the schedule as submitted would seem to be binding and the pragmatic solution would be to try to negotiate with the developer.

Last gasp for pay-when-paid

Neither Dom/1 nor Dom/2 has a mechanism for the non-payment of the subcontractor in the event of employer insolvency. Does this not contradict the statutory adjudication provisions? Which takes precedence, the written contract or the adjudication provisions?

Before the introduction of the Construction Act, construction contracts could contain a “pay-when-paid” clause. However, since the act came into force, if a pay-when-paid clause is contained in a contract and states that the payment of a subcontractor is conditional on the contractor being paid by a third party, it will be unenforceable. But there is an exception: if the clause specifically links the conditional payment to the insolvency of a third party, it is enforceable. If the third party becomes insolvent, the contractor will not have to pay the subcontractor, unless it itself is paid.

If, however, the contract makes no mention of a pay-when-paid clause, then the subcontractor would have to be paid as per the contract terms.

Neither the Construction Act nor the Scheme nor the contract will imply a pay-when-paid clause into the contract. Therefore, if one is required, it must be expressly inserted and specifically related to a third party insolvency.

Turning profit to loss to profit again

We are a small limited company that fits hotel bedroom furniture. We had a purchase order from a company based in Ireland (O'Donnell Furniture) to fit out a hotel in Manchester. It supplied the furniture, we fitted it. Our quote for the job was based on 11 weeks on site, with 10 deliveries over a 10-week period. The building company incurred delays getting the rooms built and O'Donnell Furniture had to make more than 20 deliveries. The job was finished four months later than we had planned. We calculated a £30k profit but have so far made a £25k loss. Where do we stand with invoicing for the true costs of the job – at least so that we can break even?

It is likely that a term would have been implied into your contract that if there were delays and increased deliveries beyond those contemplated in the contract, and which were not caused by you, you should be paid a reasonable sum for the work, taking into account your original quote and the additional costs you have incurred. If your original quote was appropriate and included a reasonable uplift for profit and overheads, you should be able to recover profit and overheads over and above any actual additional costs.You will be unable to recover costs that could have been avoided had you taken reasonable steps to prevent them. However, it looks unlikely that you could have done anything to avoid these.