True value adjudication after a smash and grab: what the paying party can and cannot do

Two different questions

A "smash and grab" adjudication asks a narrow question: did the payer serve a valid payment notice or pay less notice in time, and if not, what is the notified sum that must be paid? The adjudicator does not look at whether the works were worth that sum. A "true value" adjudication asks the other question: what was the proper value of the works, and therefore of the payment, at the relevant due date?

For several years there was doubt about whether a payer who had lost the first type could start the second. The Court of Appeal resolved that in S&T (UK) Ltd v Grove Developments Ltd [2018] EWCA Civ 2448. The payer can refer the true value to adjudication, but it must first pay the notified sum. The statutory obligation to pay comes first; the right to adjudicate the value follows.

Pay first, then argue

The point was sharpened in M Davenport Builders Ltd v Greer [2019] EWHC 318 (TCC). The employer had obtained a true value decision without paying the earlier notified-sum decision, and sought to rely on it as a set-off when the contractor enforced. The court would not allow it. A payer who has not discharged its immediate payment obligation cannot use a later true value decision as a shield. Later decisions, including Bexheat Ltd v Essex Services Group Ltd [2022] EWHC 936 (TCC), have applied the same principle.

The practical consequences for a paying party are:

• Pay the notified sum, or the adjudicated sum, before or at the same time as commencing the true value adjudication.
• Do not expect a court to stay enforcement of the notified-sum decision pending the true value outcome, save in unusual circumstances.
• Build the true value case properly, because it is the only route to recovering any overpayment before the final account.

What "true value" means in practice

True value is the value of the works properly due under the contract at the relevant due date, assessed in accordance with the contract's valuation rules. That is not the same as the contractor's application, nor the payer's view of what it would like to pay. It depends on the form of contract:

• Under a lump sum contract, the value of the measured works executed, plus or minus the value of variations, plus any loss and expense properly claimed, less retention and previous payments.
• Under a prime cost or cost-reimbursable contract, the cost actually and properly incurred, supported by invoices, timesheets and plant records, plus the agreed fee, less anything excluded by the contract.
• Under NEC, the Price for Work Done to Date, assessed under the relevant Option and including implemented compensation events.

Defects and incomplete work are brought in as deductions from the value of the works, not as a separate counterclaim, provided the contract's valuation rules allow it. Contra charges and delay damages need a contractual footing and, usually, a notice.

Building the quantum evidence

The adjudicator in a true value referral will see competing figures. The one that is accepted is normally the one whose build-up can be followed. In a recent adjudication-stage instruction the exercise involved reconciling applications, certificates, bank receipts and approximately 9,500 pages of source records to test an alleged overpayment under a prime cost contract. The approach is the same at any scale:

1. Establish the account. Every application, certificate and payment, in date order, with cumulative gross, retention and net figures. Disagreements about what has been paid are surprisingly common and are resolved from bank evidence, not from either party's ledger.
2. Fix the valuation basis. Which pricing document governs, how variations are valued, what the fee or overhead and profit percentage is, and whether it has already been applied in the figures being compared.
3. Test the categories. Labour, materials, subcontractors, plant and preliminaries are tested against source records. On a large account, a sampling or category-testing approach is agreed in advance and its limits are stated.
4. Separate the three kinds of difference. Items that are unsupported by any record; items that are supported but valued differently; and items that are duplicated, misallocated or outside the contract. Each has a different answer.
5. Present a bridge. A single schedule that walks from the contractor's figure to the expert's figure, line by line, with each movement tied to a document. Adjudicators have 28 days; a bridge saves them most of it.

Timing and tactics

A true value adjudication is often started within days of losing the notified-sum decision. That timetable favours the party that already has its valuation evidence assembled. For a paying party expecting a smash and grab, the right time to instruct a quantity surveyor on the true value is before the notice point is decided, not after.

For a contractor on the receiving end, the defence is the same evidence in reverse: a complete record of applications, measured work, variations instructed and costs incurred, presented so that the adjudicator can see where the payer's deductions are unsupported.

The role of the expert

Quantum evidence in adjudication is usually given by a party's quantity surveyor rather than an independent expert, and that is legitimate. Where the dispute is likely to go further, or where the adjudicator is a lawyer rather than a surveyor, an independent expert report prepared to CPR 35 standards carries more weight and can be re-used in subsequent proceedings. The independence must be real: the report must state the documents reviewed, the assumptions made and any findings adverse to the instructing party.

This article is general information for professionals and the public, not legal or professional advice, and does not create a client relationship. The law and procedure described are those of England and Wales as understood at the date of publication. Take advice on your own facts before acting.