Difficulties In Recovering Overpayments

It is often assumed that overpayments to a contractor or

subcontractor can be recovered, but the recent case of Furmans v

shows that this is not always so.

The relevant facts were:

A agreed to perform work for B for a daily rate. The agreement

was relatively informal, and did not use any standard form of

contract

Despite the daily rate being agreed, there was no agreement on

the number of hours that A would work each day. B alleged that

there was an agreement that A's personnel would work an 11 or

12 hour day, which A denied. A's personnel were only working a

9 hour day, which B said was inadequate

Despite its complaints that A wasn't working the required

hours, B's site supervisor signed-off A's invoices, which

were calculated using the daily rate. B paid these invoices. B also

paid amounts claimed by A for worker accommodation, which A said

weren't included in the daily rate - although B disagreed

B believed it had overpaid A for the work performed, and sought

to reclaim the overpayment

Could B recover the alleged overpayment? The Court of Appeal

said "no". The fact that B had doubts about the hours

worked and had raised the issue of overpayment, yet went ahead and

paid the invoiced amounts, meant that it had waived its right to

object to the invoices.

Standard Forms

Furmans v Elecref involved a fairly simple contract. Would the

result be different if a standard form had been used?

In standard forms of contract there is not always the ability to

issue a negative interim certificate, to claw back the overpayment,

although some contracts like the NEC3 form and the JCT Major

Project Construction Contract permit negative interim

certificates.

Most standard forms allow overpayments to be recovered through

the interim payment process only when the value of work done

catches up with the payment value. For example, if a contractor is

overpaid £10,000 in one month, the payment certificate for

the next month (or a later month) may be reduced to reflect

this.

The intention with many JCT and ICE contracts is that any

remaining overpayments can be recovered in the final accounting

process. So when a final certificate is issued, a credit will be

given by the contractor to the employer, or an amount may actually

be payable to the employer.

If a standard form of contract is not used, the recovery of any

overpayment can be problematic (as it was in Furmans v Elecref). It

may be that money is only recoverable if the employer mistakenly

made the...