Settle now or later? Why the final account stage needs more attention

Most standard form building contracts emphasise the resolution of time and money issues as they arise. The NEC Engineering and Construction Contract leads the field in this regard. Prompt notification of issues, early warning meetings and mutual co-operation are central to how it works. The JCT contracts are slightly less prescriptive on this point, but they still require a contractor to give immediate notice if it becomes aware of any likely delay to progress.

The NEC contains a well-known time bar or condition precedent that applies to many of its compensation events. If the contractor relies upon an event other than an instruction, it must give notice within eight weeks of becoming aware that the event has happened. If it fails to do this, it loses the right to claim for the compensation event altogether. The employer’s (or client’s, in the terminology used in the form) project manager can also be made to deal with claims promptly. In default, various “deeming” provisions in the contract can make its life very uncomfortable.

With JCT, the contractor is not subject to time bars during progress of the works in quite the same way. However, a contractor’s failure to notify when it should have done so is still a breach of contract. That could reduce a contractor’s entitlement – for example, if the failure deprives the employer of an opportunity to suggest workarounds.

There are sound reasons for dealing with time and money disputes as they arise. Contractors want to maintain cash flow. They have to know where they stand as to extensions of time. And employers and contractors need to pass on any claims up or down the supply chain – including, in the case of employers, to their funders.

Sometimes it suits the parties to quietly put their disputes to one side and focus on getting the works completed – while still maintaining their positions vehemently in correspondence

Yet, as anyone in the construction industry will be aware, it is often not like this in practice. Sometimes it suits the parties to quietly put their disputes to one side and focus on getting the works completed – while at the same time maintaining their positions vehemently in correspondence. And adjudications are not the best use of resource while there is a project to run.

In fact, there are many benefits to resolving all matters in one go after completion. At that stage, parties make concessions that they would not have made mid-project, simply because it will be part of an overall deal. There is a case for standard form contracts to acknowledge this reality and to beef up the drafting for this “final account” stage.

Under the NEC contract, a final account stage did not exist at all until 2017. The procedure now requires the project manager to make an assessment of the final amount due within four weeks of completion of defects. If this is not done, the contractor can do so instead. Any assessment becomes conclusive unless the other party initiates the dispute resolution procedure.

That drafting change was clearly not made with the intention of any change to the overall NEC philosophy. The NEC guidance notes say: “The parties should of course have been building up to this point and very little should need to be done to close the account.”

With JCT, the process starts earlier. It begins within a set number of months (depending on which contract is being used) from practical completion, rather than from expiry of the defects liability period. Also with JCT, it is the contractor, not the employer, which kicks things off. Again, there are provisions as to conclusivity if a final statement or certificate is not challenged. The recent case of CC Construction Ltd vs Raffaele Mincione has helpfully clarified that in order to prevent conclusivity, an employer must give the appropriate notice or start proceedings but it need not do both.

Few things infuriate employers – or main contractors in relation to their subcontractors – more than having to deal with a claim when their key people have long since moved on to other jobs and memories have faded. The JCT and NEC forms both go some way to encourage resolution of final account matters.

However, neither contract has a tight timetable, reinforced with time bars, that starts promptly after practical completion – when, after all, contractors should usually be able to give full particulars of the bulk of any time or money claim. This may be because both forms tend to assume that the parties will have been resolving these claims during the construction period. However, whether that actually happens in practice is another matter.

Ian Yule is construction and engineering partner at Shoosmiths