Certificates

Chapter 16

Certificates

132 In SBC, is the contractor entitled to
suspend work under the Construction Act if
the architect has under-certified?

The right to suspend performance of obligations under the contract is contained in section 112 of the Housing Grants, Construction and Regeneration Act 1996 (as amended). Section 112(1) states:

112(1) Where the requirement in section 111(1) applies in relation to any sum but is not complied with, the person to whom the sum is due has the right (without prejudice to any other right or remedy) to suspend performance of any or all of his obligations under the contract to the party by whom payment ought to have been made (‘the party in default’).

Section 111(1) requires that, subject to various provisions (such as pay less notices), sums provided for in construction contracts must be paid on or before the final date for payment. Further sub-sections proceed to stipulate that at least seven days’ written notice must be given, that the right to suspend comes to an end when payment in full has been made, and that the person suspending has, in effect, the right to an extension of any relevant contract period and the right to be paid costs and expenses reasonably incurred.

Under SBC, the architect is required to issue interim certificates under clause 4.10. Clause 4.14 essentially repeats the substance of section 112. The final date for payment is stipulated by clause 4.12.1 to be 14 days after the date of issue of the architect’s certificate. Therefore, it is clear that there can be no final date for payment unless the architect issues a certificate. There is authority to say that the employer may well be liable if the architect does not properly comply with his or her duties under the contract, including the duty to certify at the intervals prescribed in the contract.1 The employer’s liability would depend on the employer knowing, first, that the architect had such a duty and, second, that the architect was in breach of the duty.²

However, we are not considering a situation where the architect fails to certify at all, but where the architect certifies a lesser sum than the contractor thinks is due. Therefore, the architect has not failed to carry out the duty to certify. Clause 4.12.2 obliges the employer to pay the contractor the amount stated on a certificate (obviously, this is subject to contractor’s notification and the employer’s right to pay less in clauses 4.12.3 and 4.12.5). Therefore, if the employer pays the amount on an architect’s certificate, even if that certificate is seriously undervalued, the employer cannot be in breach of contract.³ The contractor’s right to suspend arises only if the amount due under the contract – in this instance it is the sum certified – remains unpaid after the final date for payment.

Although the architect’s failure to certify the proper amount may be a breach of contract on the part of the employer, depending on whether the employer was aware of any under-certification, it is clearly not something for which the contractor can suspend. Although the question is couched in terms of suspending work, it is worth noting that both SBC and section 112 of the Act go much further and refer to suspension ‘of performance’. In other words, in situations in which the contractor is entitled to suspend performance, it is entitled to suspend anything at all that the contract requires it to do. The fact that the contract requires the contractor to insure the Works immediately springs to mind, along with other matters. If the contractor not only suspends work but also suspends all its insurances relating to the Works, the employer will be in a very difficult position.

133 Can an architect issue a negative
certificate?

Usually, the term ‘negative certificate’ refers to a certificate that shows a negative amount owing from the employer to the contractor – in other words, a certificate indicating that the contractor has already been paid too much. This raises three questions:

Even in this situation, the standard certification forms issued by RIBA Enterprises are, quite rightly, not worded so as to allow the architect to require payment of the balance by the contractor, and an architect who issues the certificate in the form of a letter is not entitled by the contract to word it in any other way. The inescapable conclusion is that the architect may issue a negative certificate, because that is the result of applying the calculation set out in the contract. However, there is no provision for the architect to certify a payment from the contractor to the employer. This is perfectly sensible and in line with the general intention of the contract. Interim certification is not meant to provide the contractor with an exact figure. Its purpose is to provide the contractor with cash flow; sometimes the certificate will be slightly less and sometimes slightly more than the amount of work actually carried out.4

In the light of those conclusions, question 3 above does not require an answer. In fact, the provisions regarding notices are not written so as to work in reverse. They expressly refer to notices to be issued by the employer and to the contractor.

Therefore, the answer to questions 1, 2 and 3 appear to be ‘Yes’, ‘No’, and ‘Not applicable, but No in any event’.

So far as the final certificate is concerned, clause 4.15.2 provides that the final certificate must state an amount due to the employer or to the contractor, as the case may be. Provision for a pay less notice in clause 4.15.4 refers either to the employer or to the contractor. Therefore, if in the final certificate the contractor was found to owe money to the employer and the contractor wished to withhold some or all of that money, it is clear that the contractor must give a pay less notice.

134 Can an architect who has under-certified
withdraw the certificate and issue a revised
certificate or simply issue another certificate
for the additional money?

The straight answer to this is that most contracts make provision for interim certificates to be issued at stated intervals, commonly monthly. The architect only has the powers conferred by the provisions of the contract, and therefore additional certificates may only be issued at the intervals stated. For example, if the contract states that certificates may be issued every month, the architect has no power to issue a certificate before the month has elapsed. In practice, the parties can jointly authorise the architect to issue an additional certificate within a shorter period; in the case of a serious shortfall, no doubt that would be the answer. An architect who has under-certified may not be eager to make that fact known to the employer and may seek to withdraw one certificate and replace it with another. An architect who has over-certified will also wish to withdraw that particular certificate.

On the basis of well-known principles applicable to arbitrators’ and adjudicators’ awards and decisions, there seems to be little doubt that the architect will be able to withdraw the certificate and issue a new one if the reason for the withdrawal amounts to a simple arithmetical error or some other similar accidental slip. However, there appears to be no judicial decision directly about situations where an architect has wrongly certified for other reasons. The problem is that the architect, in certifying, is exercising professional judgment, and the certificate is the formal expression of that judgment. Therefore, in issuing the certificate, the architect is expected to have used reasonable skill and care in coming to that judgment. The withdrawal of the certificate and its substitution with another may suggest that the architect has been negligent in the issue of the first certificate. In practical terms, the withdrawal of a certificate and the substitution of one for a greater amount will draw no complaints from the contractor, but it may possibly invite many serious questions from the employer. Replacing a certificate with one of less value may, depending on the value, cause the contractor to seek adjudication and may still draw questions from the employer. Although there may be some advice to the effect that an architect can withdraw and replace any certificate, it is thought that the better view is that a certificate, once issued and with the exception of accidental errors previously noted, cannot be withdrawn by the architect and can only be overturned by agreement of the parties or by an adjudicator, an arbitrator or a court.

135 What should the architect do if the
employer says that certain work is not to his
or her satisfaction?

Under most forms of traditional contract, it is the reasonable satisfaction of the architect which determines whether standards of workmanship, goods or materials are acceptable. It is possible to have a contract where the satisfaction is a matter for the employer, but the problem there is that the employer is not independent, and any decision would be subject to the strict scrutiny of a court. A court would expect that any exercise of the employer’s judgment would not be unreasonable, capricious or dishonest.⁵

Where the contract (such as SBC) states that certain goods, materials or workmanship are to be to the reasonable satisfaction of the architect, the employer’s approval or otherwise should not concern the contractor. In practice, of course, if the employer indicates dissatisfaction, it is a brave architect who ignores it and expresses satisfaction to the contractor. Most matters of this kind can be sorted out by architect and employer discussing the matter. However, if the employer cannot persuade the architect that he or she should not be satisfied, the architect is obliged to ignore the employer.

136 Is it true that architects may lose their
right to certify under JCT 2011 contracts?

In JCT contracts prior to 2011, the key factor in determining the final date for payment was the date of issue of the architect’s interim certificate. The date was specified in the contract particulars. The only sanction if the architect was late in issuing the certificate was the contractor’s right to interest from the day after the final date for payment had the certificate been issued at the right date. However, when the amendment to the Housing Grants, Construction and Regeneration Act 1996 came into force in October 2011, the contracts had to be amended to reflect the changes. The key date now is not the issue of the interim certificate, but rather the ‘due date’. The final date for payment in SBC, IC and MW is 14 days after the due date. The due date is specified in the contract particulars and is to be monthly thereafter or on the nearest business day. MW specifies the due date in a slightly different way, but the principle of payment is the same.

A similar, but potentially worse, situation arises if the architect does not issue the final certificate within the period specified in the contracts. The final payment due is the sum in the contractor’s final payment notice unless a pay less notice is issued. Moreover, in the case of SBC and IC, there would be no conclusivity in respect of the final sum, extensions of time, loss and/or expense and the architect’s satisfaction. The absence of a conclusive effect of the architect’s satisfaction would not be of concern to the employer, but the other matters would be of great concern. However, the final certificate under MW is not conclusive about anything, and some other contracts do not have conclusive final certificates. Therefore, the absence of a final certificate may be less of a problem under those contracts.

137 If the contractor is falling behind
programme, is the architect justified in
reducing the amount of preliminaries costs in
interim certificates?

The preliminaries section of the bills of quantities or specification should be priced by the contractor when submitting a tender. It may price every item individually based on its anticipated costs for that item, or it may simply allow a percentage against preliminaries which is calculated on the cost of the measured work. Sometimes a contractor will simply insert a lump sum figure as a total for all the preliminaries items without giving any hint of the way in which it has been calculated. It is usual when preparing an interim valuation to include a sum to represent a reasonable proportion of the contractor’s preliminaries price. If the contractor has priced individual items, then this sum can be calculated using those items. If the preliminaries figure is a lump sum, the valuer may simply divide the sum by the number of months in the contract period to represent monthly valuations.

If the contractor falls behind programme so that it seems likely that the total contract period will be exceeded, it is common for the monthly preliminaries amount to be reduced in order to extend the total, unchanging preliminaries amount over the longer contract period. This is sometimes referred to as ‘adjustment of preliminaries’. It is always something of a guess, because when the decision to adjust or extend the preliminaries is made, it will not be known with any precision how much the overrun will be. The justification for reducing the preliminaries sum in individual valuations, so that they are spread out over a longer period, is that the preliminaries costs should be related to the actual work carried out. Therefore, if the contractor has only carried out two thirds of the work, it should be entitled only to two thirds of the preliminaries. The contractor’s argument is likely to be that it is suffering the same losses each month whether or not the total period is prolonged. Against this it can be rightly said that if the contractor had not caused the delay, it would not be suffering the losses.