The JCT Design and Build Contract 2011 requires an Employer to serve three notices (the ‘Three Ns’) on the Contractor before becoming entitled to liquidated damages (“LADs”), whether by way of claim, deduction or withholding. Sometimes one hears talk in the industry of two notices being required, but it is more accurate to say that three notices are required. These are:
1. A Non-Completion Notice (clause 2.28)
If the Contractor fails to complete the Works or a Section by the relevant Completion Date, the Employer is required to issue a notice to that effect, being the Non-Completion Notice. If an extension if time is awarded subsequently, a fresh Non-Completion Notice must be issued by the Employer.
2. A notice that the Employer may require payment of or withhold or deduct LADs (clause 2.29.1.2)
The Employer is required to notify the Contractor, before the due date for the final payment under the contract, that he may require payment of, or may withhold or deduct, LADs. Clause 2.29.4 provides that this notice requirement is satisfied even if where a Non-Completion Notice has been re-issued, unless the Employer states otherwise in writing.
3. A notice demanding payment of LADs or withholding or deducting them (clause 2.29.1)
The Employer is required to, no later than 5 days before the final date for payment of the final amount due under the contract, serve a notice stating that, for the period between the Completion Date and the date of practical completion of the Works, (i) he requires the Contractor to pay liquidated damages (clause 2.29.2.1) and/or (ii) he will withhold or deduct liquidated damages (clause 2.29.2.2).
Bit confusing? Let me explain…
Clause 2.29 is confusingly drafted in that the third notice required is a notice under clause 2.29.1 (and not to be confused with the notice under clause 2.29.1.2), but the actual requirements of this notice are set out in clause 2.29.2. A notice withholding or deducting LADs and setting out what is required by clause 2.29.2.2 is a bit like a Pay Less Notice. However, it is only required to be served no later than 5 days before the date for final payment under the contract, and it is not permissible to withhold in respect of anything (e.g. defects etc.) except LADs under such a notice. Thus, if the Employer wants to withhold LADs amongst other abatements and contra-charges or against an interim certificate, the Employer should also issue a Pay Less Notice under clause 4.9.4 including the LADs which it seeks to withhold. And even if LADs are being deducted (rather than withheld) a notice under clause 2.9.1 (complying with clause 2.29.2.2) must nevertheless be served. So there you have it; make sure you remember to complete the ‘Three Ns’ or you won’t be entitled to LADs. I will be considering LADs further in a future blog.