Construction Disputes, Adjudication and Set-Off


With the building industry still suffering from the effects of the recession, firms need to be careful how they deal with construction disputes, as a recent case shows.
The dispute involved a contract between an employer and a contractor for the construction of a medical centre. Under the contract, an advance payment of £300,000 was payable to the contractor, although a somewhat lesser sum was paid. The terms stated that this was to be deducted from the final payment at the final account stage. However, the employer deducted it from the second interim valuation. The contract was terminated a few months later and the contractor went to adjudication regarding the non-payment by the employer. The adjudicator ruled that the contractor was entitled to a payment of £300,000.
The employer went to adjudication alleging a delay on the part of the contractor and, in this instance, the adjudicator ruled that the employer was entitled to a payment by the contractor of £180,000 by way of liquidated damages for the loss caused by the delay. However, because the employer had not issued a withholding notice regarding the sum deductedwhen making the reduced payment, as was required under the contract, the adjudicator declined to allow the employer to set off the £180,000 against the payment it was due to make to the contractor. Instead, this had to be recovered by way of a separate claim.
The employer went to court to assert its right of set-off. It was concerned that by the time of the final accounting, the contractor would be unable to repay the £180,000. The court allowed the set-off because the adjudicator had calculated the amount of liquidated damages due to the employer. Because the sum was quantified, failure to issue a notice of set-off was not critical. Had the amount of the set-off not been quantified and the right to make a counter-claim been all that had been agreed at adjudication, the employer’s claim would almost certainly have failed.
In this case, the employer should have issued a withholding notice and failing to do so meant an appearance in court. We can help you get your paperwork right at all stages of a contract and where there is a dispute over a contract.

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