The claimant, C Spencer Limited (“CSL”), entered into a sub-contact with MW High Tech Projects UK Limited (“MW”), the defendant, in November 2015. CSL, the sub-contractor, was engaged by MW to design and construct the civil, structural and architectural works for the completion of a power plant. The subcontract included construction operations (for the purpose of the Housing Grants, Construction and Regeneration Act 1998 (the “Construction Act”)) in addition to non-construction operations (defined by s105 of the Construction Act as including the “assembly of…plant or machinery, or erection…of steelwork for the purposes of supporting or providing access to plant or machinery”).

A dispute arose between the parties following CSL’s application for interim payment in February 2019. CSL’s interim payment application number 32, which was for £3,353,219.22 plus VAT, included a breakdown with each item allocated to or divided between construction operations and/or non-construction operations. Of this sum, £2,683,617.09 plus VAT was in respect of construction operations and the remainder was claimed in respect of other works. MW’s subsequent payment notice, however, failed to make the same distinction. CSL challenged its validity based on MW’s failure to identify what was due in respect of construction operations and, on 05 April 2019, CSL commenced Part 8 proceedings seeking payment of £2,683,617.09 plus VAT.

The key question for the court to consider was whether it is necessary under the Construction Act, namely ss110A(2)(a) and 111, for the payment notice to state the basis of the calculation of the sum due in respect of construction operations, and in doing so distinguish it from any non-construction operations falling outside of the Construction Act. The express wording of s111 and 110A does not stipulate separate identification of the sums due in respect of construction operations. For a payment notice to be valid under s110A(2), it must contain the sum considered due at the payment due date and the basis upon which the sum is calculated. S110A(2) could, therefore, be complied with by simply stating the overall sum considered due. 

The Judge stated that where a hybrid contract contains a payment scheme that “complies with, or mirrors, the relevant provisions of the Act for both construction and non-construction operations”, a payment notice failing to distinguish between the two is still capable of being valid. The situation in the present case can be contrasted with Severfield (UK) Ltd v Duo Felguera UK Ltd (2015), which was based on contract works that included not only construction operations under the Construction Act, but also works that were excluded under s105(2) of the Construction Act. Therefore, whilst s104(5) of the Construction Act limits the statutory payment provisions to apply only to the construction operations under a contract, parties can take a pragmatic approach and agree a payment scheme themselves that can work alongside the statutory provisions. A payment notice can, in such an instance, satisfy the statutory requirements with regards to construction operations as well as the contractual requirements with regards to non-construction operations. It was therefore held that MW issued a valid payment notice in response to CSL’s application.

This case demonstrates that a single payment mechanism can be used effectively provided the contract between the parties includes mechanisms compliant with the Construction Act, and not excluded works such as was the case in Severfield. This enables parties to avoid the need of dealing with two separate mechanisms for payments, and hopefully providing a more efficient approach.