Contra-charges & defending claims

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Is your client threatening to deduct contra-charges from your account, or have they done so already? Have you received a pay less notice that claims that you owe money to your client, not the other way around?

We are experienced in assisting parties to construction contracts in defending claims and contra-charges. This includes claims for liquidated damages, delay (LAD’s) or other liquidated damages, claims passed on from other sub-contractors and consultants, and claims for defective work.

Who has to prove their position?

Generally speaking, it is the party making an assertion that has the burden of proving that their assertion is correct. A party claiming contra-charges therefore usually has the ‘burden of proof’.

In civil proceedings, the standard of proof is on the balance of probabilities. In other words, the claiming party must present evidence to demonstrate that the occurrence of the events or circumstances claimed were more likely than not.

Just as a contractor or sub-contractor would have to prove an entitlement to variations, extension of time or loss and expense on the balance of probabilities, an employer or contractor would be held to the same standard in proving their claims in front of an adjudicator or judge.

What needs to be proved in order for a contra-charge to be valid?

A party claiming a contra-charge will generally need to prove on the balance of probabilities that the other party was in breach of an obligation and that the breach in question caused it a loss. Often the claiming party will have an obligation to mitigate its losses, by taking steps to keep them to a reasonable sum.

Whilst it is the claiming party’s burden to prove their claim, evidence that contradicts that of the claiming party can be vital in defending contra-charges. Careful record-keeping can therefore be as crucial to defending claims for contra-charges as it is to claiming positive entitlements.

Cross-contract set-off

Construction contracts sometimes contain cross-contract set-off clauses, meaning that monies owed on one job can be set-off against those owed on other jobs. Such clauses can cause big problems for parties which are engaged on multiple projects by another party. Other problematic clauses can provide that estimates of damages by the party having work carried out will be binding on the other party, making it easier for them to substantiate claims.

Pay less notices and conditions precedent

Construction contracts sometimes require that specific notices are given before contra-charges can be deducted – the JCT for example requires certain notices before liquidated damages (LAD’s) can be deducted and pay-less notices may be required to be given.

Claims for contra-charges by the party having work carried out will however rarely be subject to ‘conditions precedent’ that are as onerous as those imposed on parties carrying out work (such as the requirement to give notices of extension of time or loss and expense within a certain time or rights are lost).

How we can help

When defending claims it can be even more important to take advice as early as possible in the process. Taking advice and action early is likely to pay dividends in the long run. We can assist you at any stage, whether contra-charges have been threatened or actually deducted, and whether or not adjudication or other proceedings have been commenced against you.

If deductions are being threatened or are being made from your account, you disagree with a payment notice or pay-less notice or proceedings have been commenced you we can provide you with rapid advice. Our team of experts are experienced in having to get to grips with complex issues quickly and we can therefore be in a position to defend you immediately. We can often act on the same day of instruction.

Free initial enquiry

We offer a one hour free initial consultation to new clients. Please contact us by phone, email or using our contact form for a free initial consultation to discuss how we can help you deal with contra-charges and defending claims.

Contact us about Contra Charges





FAQs

Contra charges are financial deductions made by one party to offset costs incurred due to the other party’s actions or omissions.

Contra-charges should not be imposed for tasks that remain incomplete. In such situations, the contractor typically just withholds payment for the incomplete work. Nevertheless, the contractor sometimes not only withholds payment to the sub-contractor for work left undone but also applies a contra-charge for the expenses incurred in hiring another party to complete the work.

Effectively, this ‘double dipping’ allows the contractor to get the work done for free. Such practices are not likely to be permitted by the terms of the contract. It is imperative for sub-contractors to be aware of their rights and to challenge any such unfair practices.

While it is possible for contra-charges to be applied at any stage of a project, they usually surface at the end, once the work is complete.

The reasons for this timing can vary. Sometimes, it is because the contractor uncovers legitimate issues or inconsistencies while reviewing the final account, which then warrant these deductions.

Frequently the imposition of contra-charges is tied to the contractor’s financial circumstances, rather than genuine issues caused by the sub-contractor. The contractor may have exceeded the project budget, and with the sub-contractor off-site and unable to verify whether the claims made are genuine, the contractor might resort to contra-charges to mitigate their overruns, which they are not entitled to do.

For practical purposes, it is not possible to stop a contractor from imposing construction contra-charges in the first instance, whether or not the charges are genuine. However, if the contra-charges are disputed, then the sub-contractor usually has the option to adjudicate against the contractor to establish the proper value of the deduction, which may well be £nil.

Fortunately for the sub-contractor, they do not have to prove that the contra-charges are false. Rather, it is for the contractor to prove that the contra-charges are genuine. To do this, the contractor must show:

  • That there was some breach of the contract by the sub-contractor.
  • That the contractor suffered a loss.
  • That the loss they suffered was caused by the breach.
  • That they have correctly quantified their loss.

This is not easy to do. We have seen contra-charge claims allegedly worth millions of pounds completely struck out because the contractor could not prove its entitlement to make those claims.

It is important to remember that if the charges seem excessive, you certainly have the right to challenge them.

  • First, try to negotiate. Open communication channels with the contractor to discuss the charges. Understand their perspective but also make your case, armed with any supporting documentation you have.
  • Whilst they have the burden of proving their claims, any evidence that you have that contradicts them will be very valuable. You should collate all of this.
  • Apply the same level of scrutiny as they would to you if they were assessing your variation or loss and expense claims.
  • If negotiations do not yield a satisfactory outcome, you can consider adjudication or arbitration.

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