UK: Cash Flow on PFI Projects

Last Updated: 2 February 2006
Article by Patrick Twist

Since the introduction of the Housing Grants Construction and Regeneration Act 1996 (the Act) lawyers have been grappling with the question of how PFI projects are affected by the way the Act operates. There were two particular issues.

  1. Could the SPV put itself in the position where it only had to pay the contractor when it had already been put in funds by the procuring authority?
  2. Could the contractor be prevented from bringing adjudication proceedings by provisions in the construction contract that, until the SPV's rights under the Concession Agreement had been determined, the contractor could not enforce any rights for project relevant events?

The recent case of Midland Expressway Limited v Carillion Construction Limited & Ors (Number 2) [2005] EWHC 2963 (TCC) has confronted these two issues. The case came to court because the contractors commenced an adjudication seeking additional payment of £10 million in respect of changes to their works on the Birmingham Northern Relief Road. Under the contract, the SPV was able to ask the Secretary of State for Transport to join into any such adjudication but in this case the Secretary of State declined. The contractors commenced adjudication proceedings by service of a Referral Notice on the SPV. The SPV's response was to apply to the court for an injunction to stop the adjudication going ahead.

The judge had to decide firstly whether the dispute was a ‘construction dispute’ for the purposes of the Act. The SPV argued that the SPV's role was just as a conduit for payment and that the contractor's right to payment was in fact governed by the Concession Agreement. The judge decided that it was a ‘construction dispute’ based on the wide definition in the construction contract and also on the basis that notwithstanding the payment mechanism the claim was in truth against the SPV in its capacity as the Employer under the construction contract.

Secondly, the SPV argued that the contractor could not adjudicate at this stage because the construction contract stopped the contractor from pursuing any claim in respect of the valuation of a change before the value had been determined under the Concession Agreement. The contractor argued that this was contrary to the Act in that it was an attempt to remove the right to adjudicate at any time. The judge agreed with the contractor and referred to other recent cases on s108 of the Act (John Mowlem & Co Plc v Hydra-Tight Limited and RG Carter Limited v Edmund Nuttall Limited). The judge found it unnecessary to decide whether the clause in question was actually contrary to the Act (meaning that the contract provisions for adjudication fell away and the Scheme for Construction Contracts was substituted) or whether the clause could be construed narrowly in a way which was consistent with the Act.

The judge also had to look at whether the contractor could press on with the claim for interim payment against the SPV before the dispute resolution procedure under the Concession Agreement had been fully operated. The SPV argued that the contractor was debarred from pursuing the claim until it had been evaluated under the Concession Agreement. Clauses in the Concession Agreement restricted any price adjustment in the contractor's favour to the amounts which the SPV was entitled to be paid. The contractor argued that the payment mechanisms in clause 39 were contrary to s113 of the Act as being ‘pay when paid’ clauses. The judge agreed.

On the face of it, the effect of clause 39 was that the contractor could not be paid any money in respect of a department change until the SPV had established an entitlement under the Concession Agreement. The Judge found the latter provision to be contrary to s113. He noted that the use of the words ‘the amounts … to which the employer is entitled to be paid’ rather than ‘is paid’ were not enough of themselves to make the payment provisions compliant with the Act given the pay when paid wording also to be found in clause 7 of the contract. This decision does therefore leave open the question of whether ‘pay when certified’ clauses could still be effective. It should however be noted that the recently published DTI paper on improving payment practices in the construction industry raises the question of possible legislative intervention to restrict how pay-when-certified clauses can be used .

The significance of the decision in this case is that it provides the first guidance on the impact of the Act on contractors and SPVs engaged in PFI projects. There has been clear support by the senior judge in the TCC for the principles of the Act being upheld protecting contractors against cash-flow difficulties arising out of pay when paid type arrangements.

There is further confirmation of the right to adjudicate at any time, which gives contractors the right to pursue their claims irrespective of the payment position between the SPV and the authority.

For SPVs, conversely, there is an enhanced risk that they may be obliged to make payments to the contractor at a time when they have not received an equivalent payment from the authority.

Although the ruling does not affect procuring authorities' contractual obligations under the concession or project agreement, they will be interested in its potential effect on SPV cash-flow.

The comments of the judge raise question marks over the enforcement of other mechanisms adopted in PFI projects such as parallel loan agreements to sidestep the impact of s113. These and other project relief mechanisms may well now be reviewed by SPVs in the light of the decision and the judge's comment that:

"Parties cannot escape the operation of s113 by the use of circumlocution"

Case: Midland Expressway v Carillion Construction Ltd & Ors [2005] EWHC 2963 ( TCC ).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions