WITHOUT PREJUDICE NEGOTIATIONS

David Daly from HD Construction Solutions discusses final accounts and without prejudice negotiations

The JCT standard forms of contract contain provisions for assessing final accounts stipulating timeframes for issuing and disputing final account assessments. Failure to comply with these timeframes can lead to potentially disastrous consequences. Where final accounts contain disputed sums, it is common to find that without prejudice (“WP”) discussions are held in parallel with the parties seeking to resolve their differences amicably.

This article examines the potential pitfalls of this approach where one party is unaware of the potentially draconian consequences of failing to dispute a final account issued by an employer or contractor. Whilst applicable to contractors, it is especially aimed at subcontractors who we have found fall foul of this issue more often.

Introduction

We have seen a number of recent enquiries from specialist sub-contractors employed under JCT Design and Build Sub-Contracts (“JCT DB SC”) in relation to WP discussions and final accounts. These queries centre around negotiations with employing contractors on a WP basis but remain unagreed. If however, a contractor issues its assessment of the sub-contractor’s final account on an open basis during WP discussions, what should a sub-contractor do? Would failing to respond result in the contactor’s assessment being deemed as final?

What is a WP discussion?

This is a confidential exchange between parties that can be either written or oral where they participate in negotiations to amicably resolve a dispute. Exchanges are usually marked ‘Without prejudice’ to avoid potential arguments in future on what was and was not a WP exchange. WP discussions allow the parties to make offers to one another in the knowledge that these discussions will not be admissible in future proceedings unless both parties agree otherwise. WP discussions encourage parties to seek settlement of disputes thus avoiding formal dispute resolution methods.

Sub-contractors need to be aware that WP discussions do not negate a contractor’s entitlement to issue a final account assessment under the subcontract on an open basis i.e. fully admissible in proceedings.

Final accounts

Standard form contracts/subcontracts often (but not always) contain provisions that enable employers/contractors to start the final account process. They provide specific timeframes within which this process must be undertaken in order to prevent accounts being left inconclusive such as clause 4.26 of the JCT Standard Building Contract 2016 and clause 4.24 of the JCT Design and Build Contract 2016. For JCT Design and Build Sub-Contracts, the procedure is set out in clause 4.6.1-4 (2011) and clause 4.21.1-4 (2016).

Clause 4.21.1-3 of JCT DB SC 2016 sets out the timeframes within which a sub-contractor should issue its final account submission and supporting information, together with the contractor’s response. Especially important to note is that clause 4.21.4 states the following:

“If nothing in the statement sent by the Contractor…is disputed in writing by the Sub-Contractor… within one month of submission of the statement to the SubContractor, the Final Sub-Contract Sum shall be deemed to have taken into account all adjustments required by these Conditions.”

Sub-contractors need to be wary of situations like these – is the assessment issued by a contractor similar or different to that of the WP discussions? Does the assessment contain amounts due to the sub-contractor or does it now state that the contractor is due a payment from the sub-contractor? If you receive a final account assessment from a contractor during WP discussions that you do not agree with, it is essential that you dispute this assessment within the period stated in your contract. If you do not, you could find yourself time barred from later bringing a claim to dispute this assessment. What you might think is a WP discussion for a positive payment could end up leaving you seriously out of pocket if you fall foul of the stipulated timeframe.

Practical tips

• If you intend for your exchange to be WP, then clearly mark it ‘Without prejudice’ to avoid any doubt

• If during WP discussions you intend for an exchange to be open, then make this clear

• Be aware that even if in WP discussions, there is nothing preventing the other side from issuing open correspondence like a final account assessment – be aware to this and do not be out manoeuvred

• Always, always comply with any time bar provisions related to the final account (and anywhere else in the contact for that matter) – you do not necessarily need to provide full particulars at that time but not responding is likely to be fatal to your position

• If in doubt, always seek advice in good time.