FREE CHAPTER from ‘A Practical Guide to Construction Contracts in Northern Ireland’ by David Humphreys


“We are all trying to hack out a pathway through a dense thicket of amended legislation, burgeoning case law and ever-changing standard form contracts.”

  • Lord Justice Jackson

S&T (UK) Ltd v Grove Developments Ltd


The subject matter of this book concerns contracts which fall to be regulated by the Construction Contracts (Northern Ireland) Order 1997 (as amended) (“the Order”). The construction and built environment industry in Northern Ireland plays a key role in the local economy. Projects of all sizes and complexity, financed both publicly and privately, shape our built environment. Such projects are often fraught with multifaceted legal and financial risks. These risks are not peculiar to Northern Ireland alone but are, rather, systemic of the wider UK construction industry. Indeed, around a fifth of all insolvencies in the twelve months ending 31 March 2023 were construction related.[1]

As at the date of this book’s publication, the financial threshold to admit a case for determination in the High Court of Justice in Northern Ireland is £30,000. A 2022 study by King’s College London found that the average value of a construction adjudication claim lay between £125,000 and £500,000,[2] meaning that the average lower boundary for claim value in adjudication is a little over four times that of the threshold for admission to the High Court in Northern Ireland. This fact alone should be sufficient to pique the interest of those professionals operating in the built environment sector. Considering that a construction contract might well operate a payment system comprising dozens of interim payment cycles, it ought to be apparent that the complexity and duration of construction projects therefore give rise to frequent opportunities for the counterparties to end up in dispute. As May LJ observed:

Construction contracts do by their generate disputes about payment. If there are delays, variations or other causes of additional expense, those who do the work often consider themselves entitled to additional payment. Those who have the work done often have reasons, good or bad, for saying that the additional payment is not due.[3]

If the nature of construction work is itself a progenitor to a dispute relating to payment, the lack of an adequate contractual payment mechanism or, in the case of Simms Construction Ltd v GR Homes Ltd,[4] a complete lack of a formal contractual structure whatsoever, serve to add further layers of complexity. Contracting on the basis of what Coghlin LJ euphemistically described as “fairly fluid”[5] terms is another common feature of the modern construction industry, particularly in the ‘main works’ contractor / specialist subcontractor sphere, or where the parties have longstanding mutual commercial interests.[6] A further variation on this theme may occur where the parties have reached a concluded express agreement but have failed to properly or consistently administer the contract to the letter of the contract.[7]

Payment under a construction contract

For these reasons, the law has long recognised that contracts for the construction or building of things are very different beasts to, for example, contracts for the purchase, supply or hire of goods; these having a more ephemeral character. In very simple terms, a construction contract is a legal framework for managing three constraints: specification (what is the contractor being asked to build, and to what standard?); time (how long does the contractor have to build it?); and price (how much is the contractor to be paid?).[8] In Gilbert Ash (Northern) Ltd v Modern Engineering (Bristol) Ltd,[9] Diplock LJ said that a building contract was:

“…an entire contract for the sale of goods and work and labour for a lump sum price, payable by instalments as the goods are delivered and the work is done.”[10]

It is now common for standard forms of construction contract to offer a variety of pricing options.[11] However, as we shall see, the issue of price and, more particularly, the manner of how the price will be paid to the party undertaking the work, form a core function of the Order – as well as frequent source of dispute. Substantive disputes as to payment typically crystallise on the assertion by a contractor that they are entitled to more by way of payment than the employer has determined due, or conversely an assertion by the employer that it is overpaid the contractor in a previous payment cycle, leading to a reduction in the gross valuation of the works.[12] This is because interim payments on account only represent a snapshot of the progress of the contractor’s works at any given time. The courts recognise that the process of ascertaining the value of an interim payment is a trifecta of science, art and experience of the party undertaking the valuation assessment, not intended to produce an exact valuation. There is a wide margin of appreciation for errors. Interim, in this context, means exactly that: interim, because the gross valuation of the works in a subsequent payment notice is prone to rise and fall.

Construction contracts as ‘relational’ contracts

Despite the general position in English law that in the absence of an express provision there is no implied contractual term of good faith, there is now a growing recognition emanating from the judiciary (both in Northern Ireland and across Great Britain) that the relational nature of construction contracts is such that they attract higher standards of mutual obligation vis-à-vis communication, cooperation, reasonableness, fidelity, trust, and confidence. Three recent decisions on the NEC form of contract illustrate this point well.

The first is Costain Limited v Tarmac Holdings Limited.[13] Whilst acknowledging his uneasiness at the idea of a general obligation of fairness Coulson J, as he then was, said that the extent of the parties’ obligations of mutual trust and cooperation not only prevented the defendant from lulling the claimant into believing that a time bar condition precedent was either non-operative or would not be relied upon for that purpose, but went further: “it would extend to a positive obligation on the part of the defendant to correct a false impression obviously being made by the claimant” [as to the non-operation of such a clause].[14]

Expanding on Coulson J’s reasoning, Deeny J, as he then was, held in Northern Ireland Housing Executive v Healthy Buildings (Ireland) Limited that a professional consultant’s refusal to provide evidence of actual time sheets and records to vouch for the measure of their compensation would be “entirely antipathetic to a spirit of mutual trust and cooperation”.[15] Deeny J was prepared to dispense with the strict provisions of the contract as to the ascertainment of compensation, instead preferring to consider the actual evidence rather than (per the contract) the consultant’s forecast of its loss. In doing so, Deeny J’s decision underscores the degree to which the courts have been prepared to apply the law to the facts on the ground in pragmatically striving for an “efficacious and business-like interpretation of the contract”. Had the parties properly administered the contract, Deeny J could have reached an entirely opposite result.

Most recently, in Van Oord UK Limited v Dragados UK Limited, the Scottish Court of Session (Outer House) held that an instruction by the employer to omit certain works and award these to a third-party contractor would amount to a breach of the obligation to act in a spirit of mutual trust and co-operation.[16]

This is not to suggest that every construction contract will import a fiduciary-like standard of good faith. The NEC suite is well-known for containing an express provision as to mutual trust and cooperation. However, when it comes to the ascertainment of payments due, especially where a project may involve technical or unusual levels of complexity, the point can be made that Courts and tribunals are likely to carefully scrutinise the conduct of the parties over the global performance of the contract in dispute. This is because, in many circumstances, particularly where the parties’ contract is not formed on the basis of a well-known standard form, the employer or owner of the works has a vested interest in ascertaining the amounts due to the party performing the work, and the party performing the work is at the mercy of their employer making regular progress payments in respect of the works properly executed. Expressed in the language of very recent case law, it is not necessary for a payee to establish mal fides in order to vitiate a payment notice. Rather, all the payee must demonstrate is that the paying party did not genuinely believe in the sum notified as due.[17]

Substantive law relating to construction contracts in Northern Ireland

The Order represents the transposition into Northern Ireland law of Part II to the Housing Grants, Construction and Regeneration Act 1996, commonly abbreviated to HGCRA 1996 or “the Construction Act”. Due the significant amends made to the Construction Act through the Local Democracy, Economic Development and Construction Act 2009 (“LDEDCA”) the phrase ‘Construction Act’ is usually taken to be a shorthand for the provisions of Part II of the Housing Grants Construction and Regeneration Act 1996 as amended by LDEDCA.

This book proceeds on that convention. References to the Order should be construed as references to the Order, as amended by the Construction Contracts (Amendment) Act (Northern Ireland) 2011 (being the legislation which transposed the Construction Act elements of LDEDCA into Northern Ireland law).

The preamble to the Order makes clear that its purpose is to correspond to Part II of the Construction Act. The Construction Act itself was enacted consequent to the recommendations of Sir Michael Latham’s influential report Constructing the Team (“the Latham Report”), as part of HM Government’s Joint Review of Procurement and Contractual Arrangements in the United Kingdom Construction Industry. For the purposes of this book, the Latham Report is relevant in three key respects. Firstly, the report identified that significant costs in the construction industry were attributable to disputes over payment. Secondly, the payment provisions of construction contracts were easily open to abuse. Employers could, for example, raise a last-minute abatement or set-off against sums due to the Contractor, effectively wiping out the benefit of any interim payment. Thirdly, Latham identified that the adversarial forums in which those disputes where aired, i.e. before the courts or in arbitration, resulted in the deferment of much-needed cashflow. As Lawton LJ said in Ellis Mechanical Services v Wates Construction Limited:

“the Courts are aware of what happens in these building disputes; cases either go to arbitration or before an Official Referee; they drag on and on; the cash flow is held up…that sort of result is to be avoided if possible…”.[18]

In Northern Ireland, the Order provides a cure to this mischief, principally by setting down certain minimum standards which all construction contracts must comply with in terms of payment provisions, dates for payment, and the giving of notices. Further, a compulsory system of alternative dispute resolution by way of determination by adjudicator was introduced to enable fast-paced interim-binding decisions on disputes or differences arising under a construction contract which, as with Scotland, England & Wales, is supported and endorsed by a specialist court enforcement scheme.

These standards are, save in a few respects, not prescriptive. While the Order is framed as a series of specific requirements, the language as to how those requirements are achieved is drafted in an open-ended texture. Where the terms of a concluded construction contract do not attain these requirements (either because the parties have neglected to agree terms compliant with the Order in their negotiations or, because the terms which have been agreed are not adequate), the very prescriptive provisions Scheme for Construction Contracts in Northern Ireland (as amended) (“the Scheme”) will operate so as to imply terms which either replace offending provisions, or augment the parties’ bargain for the purposes of contractual efficacy.

What the Order achieves a hierarchy of rights. While the provisions of the Order are directly effective,[19] that is, the obligation to comply with its provisions are statutory rather than contractual in nature, a failure of a construction contract to attain the minimum standards required by the statute will bring into play a suite of statutorily implied terms. These implied terms provide a minimum standard of harmonisation across any non-compliant construction contract.

The Scheme is put on a statutory footing under the Scheme for Construction Contracts in Northern Ireland Regulations (Northern Ireland) 1999 (“1999 Regulations”), as amended by the Scheme for Construction Contracts in Northern Ireland (Amendment) Regulations 2012 (“2012 Regulations”) (the latter essentially being an update to the former to reflect the changes brought in by LDEDCA). The extent to which the Scheme is implied into a contract will depend on the degree to which it is non-compliant with the Order. Art. 13(3) of the Order provides that where any of the provisions of the Scheme apply by virtue of the Order in default of the contractual provision agreed by the parties, they have effect as implied terms of the contract concerned.

By Regulation 2 of the 1999 Regulations, where the construction contract fails to comply with the of the requirements of Arts. 7(1) through (4) of the Order, the entirety of Part I to the Scheme will take effects as implied terms of the contract. Whereas Regulation 3 of the 1999 Regulations only imports the relevant provisions of Part II of the Scheme where (i) the parties are unable to reach agreement in respect of Arts. 8, 10 and 12 of the Contract, or the contract does not make provision as required by Art. 9 of the Order. The Court of Appeal in England and Wales has confirmed that the word relevant only imports the provisions of Part II to the Scheme on a piecemeal basis, only insofar as is necessary to complete the parties’ bargain. [20]

Payment provisions of the Order

In very simple terms, the payment provisions of the Order function as follows. First, visualise staring at a goalframe. The first post represents an event known as the “payment due date”, the date on which an interim payment becomes due for payment. Construction contracts are required to contain adequate provisions to determine how and when interim payments become due, but where they fail to make adequate provision, the relevant paragraphs of Part II to the Scheme will take effect as implied terms of the contract to assist us in determining how and when the first post is to be fixed. These rules will be considered in some detail later.

The second post represents an event known as the “final date for payment”, that is, the date on which a payment which has become due is finally payable. The crossbar between the first and second posts represents a window of time during which further events will occur between the goalposts. The ‘width’ of this window will also be fixed under the contract or by operation of law under the rules implied by the Scheme but, importantly, the second post is pegged to the first post, not the other way around, and not to any other event. There is therefore a direct legal relationship between the due date and the final date for payment.

By law, construction contracts must (in relation to every payment provided for by that contract) make provision for the giving of a payment notice, stating the amount considered due (or to have been due) at the due date, and the basis on which that sum is calculated. A payment notice cannot be given later than five days following the payment due date. The ascertainment of when a payment notice must be given is, like the final date for payment, also pegged to the first post (the payment due date). The sum stated as due on the payment notice becomes the ‘notified sum’. Save where the paying party gives the other party a notice of intention to pay less than the notified sum then, regardless of the ‘true value’ of the works undertaken by the payee, the notified sum must be paid without deduction on or before the final date for payment. Unlike a payment notice, a notice of intention to pay less than the notified sum is pegged to the second post (the final date for payment).

If you have persevered through this tortured football analogy, then you will appreciate that the payment due date is something of a fundamental concept. While the analogy paints a simple picture of an interim payment cycle, the importance of the payment due date cannot be overstated, because the contractual efficacy of every final date for payment, payment notice, and notice of intention to pay less than the notified sum, will be tested against the payment due date. It would be naïve to think that the law in this area is plain sailing for, as practitioners will know, if things really were this simple, lawyers would not exist.

Some clients will choose to expend thousands of pounds having lawyers and professional consultants pour over weighty standard form construction contracts, their amended and additional clauses, negotiating very favourable payment terms, only to put the executed contract in a drawer, forget about it, and complain that the cost of their performance of the works vastly exceeds the amount received by way of interim payments. The same clients will occasionally also declare to the counterparty things to the effect that “no further works will be carried out” unless and until payment of an invoice (not a payment notice), submitted perhaps a day or two prior, be made immediately, quite properly causing the other party to claim that a repudiatory breach of the contract has occurred, and to expect a claim in damages.

Other, often well-heeled, well-established clients with skin in the game, will realise upon receipt of a claims consultant’s hastily drafted notice of adjudication that, probably for decades, their business has been involved in the carrying out of ‘construction operations’, and a persistent aversion to understanding payment fundamentals, or insistence on trading on standard but non-compliant inhouse purchase order terms has resulted in a hapless commercial manager having bet the firm on a colossal underappreciation of the other party’s zeal to pursue adjudication as a means to secure immediate, but not necessarily deserving, cash flow. Situations like these are of course best avoided at all costs.

A note on the use of case law in this text

Northern Ireland is a common law jurisdiction and a constituent member of the United Kingdom. Since the creation of Northern Ireland following the partition of Ireland in 1921, the courts of Northern Ireland have developed their own body of jurisprudence distinct from the courts in mainland Great Britain and the Republic of Ireland. Notwithstanding the distinctions between the internal jurisdictions of the United Kingdom, the Northern Ireland courts frequently refer to decisions made by courts in Great Britain and the Republic of Ireland where no existing authority exists in Northern Ireland.

While there are a handful of reported decisions emanating from the Northern Ireland courts in respect of construction contracts, these generally concern matters pertaining to the enforceability of adjudicator’s decisions rather than specific considerations of the Order. Therefore, where this text refers to a case from a jurisdiction external to Northern Ireland, the rationale is that the particular case referred to has considered and provided guidance on the interpretation of the equivalent provisions arising under the Construction Act.


construction-suffering-more-insolvencies-than-any-other-sector-09-05-2023/ <accessed 1 August 2023>.

[2]   Prof. R. Nazzini and A. Kalisz, “2022 Construction Adjudication in the United Kingdom: Tracing trends and guiding reform”. It should be noted that while Nazzini and Kalisz’s very thorough report does not provide a specific breakdown of claim values in Northern Ireland adjudications, data from Northern Ireland adjudications was fed into UK-wide output which yield the figures quoted above.

[3]   Pegram Shopfitters Ltd v Tally Wiejl (UK) Ltd [2003] EWCA Civ 1750.

[4]   [2010] NIQB 128.

[5]   Ibid at [5].

[6]   It appears that not much has changed in the 90 or so years since Lord Wright’s observation at p. 514 of Hillas and Company Limited v Arcos Limited [1932] 147 LT 503: “Businessmen often record the most important agreements in crude and summary fashion; modes of expression sufficient and clear to them in the course of their business may appear to those unfamiliar with the business far from complete or precise”.

[7]   See Northern Ireland Housing Executive v Healthy Buildings (Ireland) Ltd [2017] NIQB 43, discussed below.

[8]   Each of these constraints have the capacity to change throughout the lifecycle of a construction contract, either independently or in combination with other constraints. Specification may change by variation (the addition or omission of works) or the substitution in the quality of goods to be installed, such that the remaining constraints of time and price are affected. A rise in the cost of raw materials may (depending on the terms of the contract) lead to an increase in price yet leave time and specification unaffected. An employer might give a contractor an instruction to accelerate the progress of the works to achieve earlier than planned completion, leading to a truncation of time but an increase in price. One standard form contract might treat force majeure events neutrally, permitting the contractor only an extension of time to the date for completion, another standard form contract might permit an entitlement to both time and cost associated with the event. The duration and complexity of construction contracts give rise to countless permutations in respect of change.

[9]   [1973] 3 All ER 195.

[10] Ibid at 215.

[11] E.g., lump sum, target-cost, cost-reimbursable etc. The NEC4 Engineering and Construction Contract (June 2017 edition) has seven standard pricing options.

[12] On a technical basis, as opposed to a substantive basis, a payment dispute may crystallise on the grounds that the paying party has failed to make payment, in full or at all, of the ‘notified sum’ by the final date for payment, a situation colloquially referred to in the construction industry as a ‘smash and grab’ dispute, discussed in Chapter 7 below.

[13] [2017] EWHC 319 (TCC).

[14] Ibid, at [123] and [124].

[15] [2017] NIQB 43 at [43].

[16] [2020] CSOH 87 at [15].

[17] Downs Road Development LLP v Laxmanbhai Construction (UK) Ltd [2021] EWHC 2441 (TCC).

[18] (1976) 2 BLR 57.

[19] S&T (UK) Limited v Grove Developments Limited [2018] EWHCA Civ 2448 at [107].

[20] Bennett (Construction) Limited v CIMC MBS Limited (formerly Verbus Systems Ltd) [2019] EWCA Civ 1515.