Tricky JCT Clause for Contractors & How to Manage it2.10.2014
Most contractors at the end of a project and at the contractual time for the issue of the Final Certificate try and reach a sensible agreement through negotiation with the Contract Administrator on financial matters. However, standard JCT forms of contract have a clause which deals with the effect of the Final Certificate. For example, see clause 1.9 of the JCT Intermediate Building Contract.
The clauses amongst the contracts in the JCT suite are different but in short they say that unless challenged the Final Certificate is conclusive evidence of a broad range of matters. These include all extensions of time that have been given, that any necessary effect has been given to all of the terms of the contract that require additions to, adjustments of or deductions from the Contract Sum.
There are some exceptions, and the clause will not apply in respect of fraud, but to a very great extent unless the Final Certificate is challenged by adjudication, arbitration or court proceedings before or not later than 28 days after the Final Certificate has been issued (in the case of the JCT Intermediate Building Contract) then the contractor will lose the right to make any challenge to most of the financial decisions already made. This would mean that any liquidated damages already levied could not be disputed, and any decisions already made by the Contract Administrator in relation to direct loss and/or expense would also be final.
We suggest the best way a contractor can protect their position if negotiations are still continuing is to try and agree with the Employer an extension of the period of time by which the clause kicks in – for example a further 28 days or longer. This would save the contractor from having to issue immediate formal legal action and give more time for sensible negotiation. However, if no agreement is reached then the contractor will have to take action. A Notice to Refer to Adjudication will need to be issued or the issue of a Claim Form by way of court proceedings or commencement of Arbitration.
It is possible to attack the conclusive nature of a Final Certificate in these circumstances but the grounds are limited and may not be easy to establish.
It is also worth considering trying to negotiate an amendment to the clause prior to finalising the contract,
to again allow a greater period of time or even to delete it or part of it.
Sensible amendments to contracts at the outset can safeguard a contractor’s position. A legal review of the contract document is unlikely to be disproportionately costly, particularly if it is focused on specific areas of potential concern. David will be pleased to discuss your contractual issues.