Progress certificates



Most standard form contracts provide for an independent third party (an architect, engineer or 'superintendent') to have a role in contract administration, including in relation to payment claims. Usually this third party, commonly referred to as the 'superintendent', will be required by a contract to assess the contract value of the work undertaken, including any variations, and to issue a progress payment certificate for that amount (see Chapter 4 - Variations).

The issue of a progress certificate triggers an obligation on the part of the principal to pay the amount shown on the certificate. Progress certificates and payments made pursuant to them are generally 'on account' and provisional only and do not indicate acceptance of the work, nor do they prevent the principal from bringing a claim for defective work. The principal may dispute the content of a progress certificate, in accordance with the dispute resolution clause provided for in the contract.

Some examples in standard form contracts include AS 4000 which states at clause 37.2:

'Neither a progress certificate nor a payment of money shall be evidence that the ... [work under the contract] has been carried out satisfactorily.'


Can a contractor recover payment without a progress certificate?



Standard form contracts generally provide that a progress claim shall be deemed to be a progress certificate if the superintendent does not issue the required certificate within the nominated time. However, a number of cases (eg Aquatec-Maxcon Pty Ltd v Minson Nacap Pty Ltd (2004) 8 VR 16) have suggested that the superintendent's obligation to issue a payment certificate is subject to the contractor first providing such evidence as is reasonably required to assess the progress claim. A contractor will generally be entitled to interest, if the superintendent fails to issue a progress certificate within the time required.

See, for example, AS 4000 clause 37.5.


Can a principal withhold against a progress certificate?



Whether a principal has the right to deduct or withhold from a certified amount a sum claimed to be due for a breach of contract will depend on the terms of the contract. At a minimum, the contract must show a clear intention for the principal to be entitled to do so and in what circumstances.

A contract may also specifically exclude any such right, as illustrated in the case of Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd (1998) 14 BCL 215 or [1997] NSWSC 478.

CASE STUDY



Algons Engineering Pty Ltd v Abigroup Contractors Pty Ltd

[1997] NSWSC 478



Facts


  • The subcontractor and contractor entered into a subcontract AS 2545-1993 for the subcontractor to supply and erect structural steel at a particular building site.
  • The subcontract required the subcontractor to submit payment claims to the contractor's representative, who was then required to issue a payment certificate.
  • Payment of the amount in the payment certificate (or, if there was no payment certificate, the amount of the subcontractor's claim) was required within a certain period of time. Payments of progress claims were 'on account' only but the subcontract also had a reconciliation process before the final certificate was issued.
  • The subcontractor submitted progress payment claims and some payments were made by the contractor, but no payment certificate was issued.
  • The subcontractor sued for unpaid amounts. The contractor attempted to set off, against the subcontractor's claim, amounts for liquidated damages for late delivery and unliquidated damages for alleged breach of the standards of workmanship set out in the subcontract.

Result


  • The express terms of the subcontract required the whole amount of the subcontractor's progress claim to be paid, without deduction or set off. This was because the contractor had not availed itself of the ability to have its claims taken into account by the contractor's representative in issuing a payment certificate.
  • The court did not regard a delay in considering the contractor's claims (i.e. until the final certificate process) to result in any substantial injustice.

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