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The Award of Interest in the Event of Under Certification in Construction and Engineering Contracts


The purpose of this article is to try to address the question as to whether a contractor should be awarded interest on sums under-certified or not certified by an engineer (or architect) which are subsequently held, by an arbitrator or judge, to be payable. The situation is relatively common and it might be expected that the answer, if not simple, would have been long settled. The Institution of Civil Engineers Conditions of Contract 7th ed. has dealt with the issue explicitly but most contracts do not. The reality is that the point, no doubt because large sums of money frequently depend upon it, is often keenly contested and the subject of differing judicial views. The authors' intention is to'try to clarify the situation where the contract does not do so, insofar as this can be done without further rulings by the appellate courts.


There are a number of variations on the theme of non-certification/under-certification by the engineer. Three of them are posited by Sheridan:

  1. The engineer fails to certify at all.
  2. The engineer certifies and the employer pays late.
  3. The engineer certifies and the employer pays on time the amount certified, but subsequently an arbitrator (or other tribunal) revises the certificate to a higher figure.

Within these broad categories, there is room for factual differences and these may be significant, as appears below. The engineer may fail to certify because of neglect or because the contractor has not provided sufficient information to enable a decision to be made or because that information could not at that time be obtained in any event. The arbitrator may subsequently revise the certificate to a higher figure on the ground that the engineer has made an error or because additional information then available changes the picture. Where the arbitrator has power to review/revise a certificate, it is not necessary that the engineer has committed an error, (although that may be the arbitrator's finding), the arbitrator may simply disagree with the engineer's decision and decide accordingly.

If the ultimate decision is that the contractor is entitled to more than was originally certified (or not certified), the contractor's position is straightforward. It will want to be paid interest on the sums to which it is now held to be entitled and it is likely to want them compounded and to run from the time when they should have been certified.


The contractor's position is likely to receive some protection under the standard forms of contract although this will vary. Where the employer fails to pay "the amount certified" under the FIDIC Red Book (1999) cl.14.7, for example, "financing charges compounded monthly" are payable.

However, it would not automatically follow that this covers the position where the engineer has under-certified or failed to certify with good reason, or at least while acting in good faith.

Support for the contractor's position in this situation was, however, found in Morgan Grenfell v Sunderland BC. The engineer under the contract had failed to include sums in respect of drilling, blasting and ripping of material encountered in dredging a harbourmouth. The arbitrator held that the contractor was entitled to be paid for these uncertified sums and to compound interest, including interest on the contractual interest to which it was entitled.

In giving leave to appeal against the award, H.H. Judge Esyr Lewis noted that:

"The question of whether a contractor is entitled to interest under C1.60(6) in respect of amounts which he had included in a statement under CI.60(1) but which the engineer had not certified under CI.60(2), when it is later decided by an arbitrator acting under the Cl.66 that they should have been certified, is said to be of wide interest in the construction industry."

It is worth reproducing a summary of counsel's arguments on this point in the main hearing, because Morgan Grenfell represents a high point, perhaps the high point, in case law supporting the contractor. Stephen Furst Q.C., for the employer, argued that the engineer was required:

"first to form an opinion as to the amount shown in the contractor's statement which was due to the contractor and then to issue a certificate as to that amount. If the engineer failed to form an opinion, or either failed to issue a certificate or omitted a sum from it, interest is payable (under CI.60(6». If, on the other hand, the engineer formed an opinion and as a result decided not to certify or not to include an amount in a certificate, there has not been a "failure to certify" and interest is not payable."

Mr. Furst's argument was that withholding a certificate only amounts to a failure to certify when the engineer has not acted in good faith. He accepted that a consequence of this "could involve investigation by an arbitrator of whether an engineer had acted in good faith" but many other clauses of ICE depend upon the opinion of the engineer and whether that is given in good faith is therefore an unavoidable question for a tribunal. Turning to the merits, Mr Furst argued that the contract did not refer to "compound interest" as such and that, construing the contract against its background, it would be wrong to award such interest against an employer who was not able to obtain interest on amounts paid as the result of any over-certification. Mr Furst was able to refer for support on the meaning of the ICE contract to lan Duncan Wallace Q.C.: "The wording does not mean that a certificate honoured by the Employer within the period (for payment) but subsequently held to be inadequate will carry the contractual interest". Vivian Ramsey Q.C., for the contractor, argued:

"If the contractor submitted a statement under C1.60(1)1 and the engineer disallowed a sum properly due when he issued his certificate, he failed to certify in accordance with C1.60(2) . . . If either the engineer or the arbitrator found that the engmj:er had wrongfully failed to issue a certificate or failed to certify the proper amount therl the error is corrected and the employer must. . . pay interest from the date when the money was properly due."

Mr Ramsey did not accept that the engineer's motivation could be the subject of review "for an arbitrator to have to investigate the bona fides of an engineer. . . would create great difficulties both for the engineer and for the arbitrator." He directed the court's attention to the intention of c1.60: "the parties and indeed the draftsmen of the standard contract cannot have intended such a result. . . the commercial purpose of CI.60(6) is to pay the contractor interest when he is wrongfully kept out of money which should have been certified."

The court's attention was drawn to another view on the question of the correct interpretation of the provision from Max Abrahamson that it was:

"an unfortunate drafting error. .. Sub-clauses (2) and (3) require the engineer to certify the amount in his opinion due to the contractor, so that it might be argued that there is a failure to certify. .. so as to attract interest only when the engineer acts in bad faith by certifying less than is due in his own opinion, not merely when his opinion is later found to be wrong."

The arbitrator's view was that, if the employer's interpretation were correct: "An engineer who rules against a contractor when claims were first submitted would be able permanently to deprive the contractor of his contractual right to interest."

In the result, H.H. Judge Newey upheld the arguments of Mr Ramsey in support of the arbitrator:

"the engineer has to decide how much the contractor should receive and that is a matter of 'opinion', 'judgment', 'conclusion' or the like. If the engineer certifies an amount which is less than it should have been, the contractor is deprived of money on which he could have earned money. . . if the arbitrator revises (the engineer's) certificate so as to increase its amount, it follows that the engineer has failed to certify the right amount and the contractor becomes entitled to interest."

The judge regarded the engineer's intention as irrelevant for this purpose:

"an arbitrator deciding whether an engineer's certificate should be revised, does not have to consider whether it was issued bona fide. He decides only whether it was wrong and if so how it should be altered. It would be very embarrassing and difficult for an architect (sic) to have to investigate an engineer's bona fides."

If confirmation was necessary of Abrahamson's view that the drafting in the earlier ICE forms was equivocal, it was supplied by the provision of cI.60(7) in ICE 7th ed. (1999), drafted to deal with the problems highlighted in Morgan Grenfell. Clause 60(7) now provides:

"In the event of:

  1. failure by the Engineer to certify or the Employer to make payment in accordance with sub-clauses (2), (4) or (6) of the clause; or
  2. any decision of an adjudicator or any finding of an adjudicator or any finding of an arbitrator to such effect

the Employer shall pay to the Contractor interest compounded monthly for each day on which any payment is overdue or which should have been certified and paid. . . if in an arbitration pursuant to Clause 66 the arbitrator holds that any sum or additional sum should have been certified by a particular date in accordance with the aforementioned sub-clauses but was not so certified this shall be regarded for the purposes of this sub-clause as a failure to certify such sum or additional sum."

The authors of Keating state in their commentary on the ICE form that this provision has "finally clarified the Contractor's entitlement to interest" and more boldly still that "the new provisions avoid problems which have occurred under the equivalent clause in the 5th edition". Whilst this may be an accurate appraisal, it is nevertheless true that the redrafted provisions of ICE 7th ed. cannot undo the decisions of the courts to date, which are likely to govern the (many) contracts where no such elaboration exists. It is therefore not merely desirable, but necessary, to decide whether the contractor's position, as asserted in Morgan Grenfell, is correct or whether, as Sheridan puts it, "this case is against the trend and, it is submitted, wrongly decided." This involves consideration of those cases which support the employer's view as to the contractor's interest entitlement.


Nash Dredging Ltd v Kestrel Marine Ltd concerned a settlement reached between the parties, which showed that the plaintiffs had been entitled to greater sums than had been certified by the engineer. Lord Ross held:

"if it appeared at the end of the day that the sum certified by the engineer was less than ought to have been certified, in my opinion the engineer could not be said to have failed to certify, provided that it has been his honest opinion that the sum certified by him was the amount then due. .. there might be a failure by the engineer to certify if he has not issued any certificate at all when he ought to have done so; there might also be a failure by the engineer to certify where he has issued a certificate in circumstances where he could not have reached an honest opinion that the sum certified was the sum due, but there would not be a failure on the part of the engineer to certify merely because the sum certified was less than the sum which the court or an arbitrator finally considered was due." (emphasis added)

This last point was expressly approved by the First Division of the Court of Session in Hall & Tawse v Strathclyde Regional Council, where the engineer (again under an ICE 5th ed. contract) had wrongly deducted from the certificates of the contractor's entitlement the cost of the tests carried out at the engineer's requirement. The Lord President said that he:

"would construe the word 'failure' in the present context as meaning no more than that the engineer has not done something which he ought to have done in the performance of his functions . . . clearly a certificate which is revised later because of better or more complete information than was available originally does not indicate a failure by the engineer in that regard." (emphasis added).

Taking this last point, it can be stated clearly that a revision due to late information "does not indicate a failure" by the engineer to certify, whereas under ICE 7th ed., cl.60(7) "this shall be regarded for the purposes of this sub-clause as a failure to certify." The latter is thus tantamount to a "deeming" clause; even though there has been no "failure" by the engineer in the arbitrator merely revising a certificate because of better or more complete information than was available originally, it will be "regarded for the purposes of this sub-clause as a failure to certify" in order to determine entitlement to interest. The Lord President made clear that it would be:

"quite another matter if (the engineer) proceeds to make a deduction which he is not entitled to make under Clause 60(2). His duty is to certify in accordance with that sub-clause. . . if he makes a deduction which is not authorised by that sub-clause he has not certified in accordance with the sub-clause. He has done something which he ought not to have done. .. there is then a failure to certify on his part . . . "

The Commercial Court took a similar position on what would constitute a "failure to certify" in Department of Transport v Birse-Farr Joint Venture. Hobhouse J. made clear that he disagreed with Judge Newey's reasoning in Morgan Grenfell:

"The matter was argued before Judge Newey on the basis that 'failure to certify' only referred to an engineer who did not act bona fide. It does not appear to have been argued that the relevant question was whether the engineer had or had not acted in accordance with the provisions of the contract. . . However, I must respectfully disagree with the statement of that extremely experienced official referee that 'if the arbitrator revises his certificate so as to increase its amount, it follows that the engineer has failed to certify the right amount'." (emphasis added)

The Official Referees (now the Technology and Construction Court) took a similar view to that of the Court of Session in Royal Borough of Kingston Upon Thames v AMEC Civil Engineering and in BP Chemicals Ltd v Kingdom Engineering (Fife) Ltd. In the former, Judge Havery strongly dissented from Morgan Grenfell and specifically Tom Judge Newey's proposition that "if the arbitrator revises (the engineer's) certificates so as to increase its amount, it follows that the engineer has failed to certify the right amount". Judge Havery's reaction was:

"With great respect to Judge Newey, I cannot agree with his proposition. It presupposes that there exists a single right amount. There are various provisions where the amount due is a matter of judgment rather than pure calculation: for example, in the case of unforeseeable physical conditions or artificial obstructions, the contractor is entitled to be paid his reasonable costs of carrying out any additional work. . . "

Where the engineer is required to form an opinion, there is necessarily a degree of latitude. Judge Havery spelt out the practical and commercial consequences very clearly:

"On questions of fact e.g. the measurement of the work, it may not be practicable to produce an exact valuation in 28 days, and the engineer's valuation has to be made on the basis of the contractor's statement, which itself states only an estimated value. The engineer must nevertheless within the 28 days produce a reasonable estimate of the value of the works. On matters of opinion e.g. an appropriate rate for work the subject of a variation, there may well be room for differences of opinion. In either case it is manifestly implicit that in arriving at his opinion he must correctly apply the provisions of the contract."

The conclusion of this was that:

"If the engineer has done his contractual duty in issuing a certificate i.e. if the amount that he certifies does indeed represent his opinion reached, in accordance with the terms of the contract, on the basis of the statement submitted by the contractor and is reasonable on that basis, he has not failed to issue a certificate notwithstanding that an arbitrator may subsequently revise upwards the amount certified. That in such a case the contractor should not be entitled to interest on the ground of failure to certify is in my judgment consistent with the purpose of interim certification as stated by Hobhouse J. viz that it is to provide a fair system of monthly progress payments to be made to the contractor. .. the contractor is not entitled to interest merely because the arbitrator has revised the engineers interim certificates upwards." (emphasis added)

In BP Chemicals the court found it:

"clear on the authorities cited. .. that interest is not payable except where the principal has been wrongfully withheld from the Claimant. The general principle is not confined to litigation. .. In the instant case it cannot. .. be said that the principal money which the arbitrator awarded has been wrongfully withheld by BP Chemicals before the award was made. It has not been suggested that the engineer failed to certify in accordance with the contract." (emphasis added)

In their commentary on Costain Building and Engineering Ltd v Scottish Rugby Union the editors of the Building Law Reports summarise the effect of the case law:

  1. An under-certification does not give rise to any more than a right to arbitrate to procure the revision of the certificate.
  2. Until a new certificate is issued, there can be no right in the contractor to be paid.
  3. Without a right to be paid, no interest can be awarded in the arbitration under the Arbitration Act 1950 s.19A.
  4. Unless there is a culpable failure by the engineer to certify, no contractual interest can be recovered later." (emphasis added).


There is no doubt that the Arbitration Act 1996 gives arbitrators wider powers than they previously enjoyed to award interest. Section 49(3) provides that, unless otherwise agreed:

"the tribunal may award simple or compound interest from such dates, at such rates and with such rests as it considers meets the justice of the case

  1. on the whole or part of any amount awarded by the tribunal, in respect of any period up to the date of the award;
  2. on the whole or part of any amount claimed in the arbitration and outstanding at the commencement of the arbitral proceedings but paid before the award was made, in respect of any period up to the date of payment."

David Altaras observes that in deciding whether to award interest "arbitrators now find themselves in the happy position of having wider powers than their judicial brethren" and his article usefully examines the 'extent of those powers. But the Act cannot instruct arbitrators on how to exercise those powers. That is what they have to consider in any given situation. In the context of this article, it is what they have to consider when confronted with a contractor's claim for interest following under-certification or non-certification. Nor can the Chartered Institute of Arbitrators Guideline on Awards of Interest2° provide a complete answer. They distinguish, for example, between debts "where interest should normally be awarded from the date when the debt fell due to the date of the award" and damages, where "it will be important to assess the date or dates when the relevant loss was suffered."

Arbitrators and indeed courts often need to apply this distinction by answering the question whether the omission to pay the amount now decided to be payable is a question of contractual debt or breach of contract. Altaras makes the point that in Lesotho Highlands Development Authority v Impregilo the nature of the alleged obligation to pay interest was significant in deciding whether procedural or substantive law should govern it; the Court of Appeal was able to avoid deciding the position in relation to debt by holding that the interest was payable as damages and thus governed by substantive law. It is, of course, a truism that in such matters, the answer is to be found by reference to the contract, and that must be a first or early port of call for the tribunal in making a decision on the award of interest. In the case of ICE 7th ed., the "deeming" effect of c1.60(7) removes the critical nature of the distinction, because it provides expressly that the situation above, where the engineer does not certify (or under-certifies) due to lack of information or for other bona fide reasons, is treated the same as a "failure to certify" in accordance with the contract.

But reference to the contract, in the absence of such a detailed provision, will not resolve the question. An example may be found in the Institution of Chemical Engineers (I. Chem.E.) Green Book. Clause 39.6 provides that "If the Purchaser wrongfully fails to make payments, the amount unpaid shall bear interest compounded daily from the Final Date for Payment until it is received by the Contractor" (emphasis added). This raises the question as to what constitutes 'wrongful' failure to make payment. In the absence of the ICE 7th ed. "deeming" provision, a mere failure to certify by the project manager would surely not be sufficient. If this was an "innocent" failure, where the project manager was not in a position to certify accurately, it could not be "wrongful". If the project manager, acting in good faith, made an error which was subsequently corrected by the arbitrator, this would be a "wrong" failure to make payment in the sense of being incorrect, but it would not be "wrongful" in the usual sense of that word.

In these circumstances, the arbitrator's attention might well be drawn to the case law discussed above, supporting the position of the contractor and employer respectively, even though chiefly on earlier ICE forms, on the correct approach to wrongful failure to certify/ make payment. Nor is the absence of the adverb "wrongfully" necessarily conclusive. The JCT Form of Contract c1. provides:

"If the Employer fails properly to pay the amount, or any part thereof, due to the Contractor under the Conditions by the final date for its payment the Employer shall pay to the Contractor in addition to the amount not properly paid simple interest thereon for the period until such payment is made."

An arbitrator reviewing a certificate under this form and increasing the sum payable would have to decide whether a payment based on the under-certification was an improper failure to pay the amount due under the Conditions. This might well require a decision on the significance of the engineer's reasons for under-certification / non-certification and whether a failure to pay on a certificate issued bona fide but incorrectly would be treated equally with a certificate issued in bad faith on the one hand and entirely "innocently" in the absence of the necessary information on the other hand.


Judges and commentators identified a clash of judicial authority in the 1990s, centred chiefly on the then current ICE Forms of Contract. Contractors argued that, following Morgan Grenfell, they should be entitled to interest, and compound interest, wherever a certificate was subsequently revised upwards in their favour; in short, wherever non-certification or under-certification occured and for whatever reason. Employers relied upon strong judicial authority from Scotland, the Commercial Court and the Official Referees attacking Morgan Grenfell and distinguishing between situations where the engineer certified incorrectly in breach of contract (and a fortiori in breach of good faith) and under-certification/non-certification in good faith and comprising a proper exercise of discretion in the circumstances at the time. The former, they maintained, might attract interest, whereas the latter would not.

While it is not possible to state a position which will apply equally irrespective of the contractual provisions used, the criticisms by Hobhouse J., the Scottish courts and the Official Referees appear persuasive. The balance of authority is against Judge Newey's support of the contractor's right to interest wherever upward revision of a certificate occurs. Ian J:)uncan Wall ace Q.C. warned that "consistent with the well-known position that an owner does not warrant the competency, but only the honesty, of an A/E certifier, clear language is needed to support an interpretation involving payment of interest where there has been bona fide under-certification by the A/E and the owner has paid in full."

The ICE sought to defuse the conflict of authority for the benefit of parties and arbitrators in the 7th ed. by providing clear language treating the situations as the same for the purpose of awarding interest to the contractor. Thus, an engineer would be "regarded" as having failed to certify, even where what has really occurred is not a failure to certify within the meaning adopted by Lord Ross in Nash Dredging, the Lord President in Hall & Tawse; Hobhouse J. in Birse-Farr or Judge Havery in Royal Borough of Kingston Upon Thames v AMEC.

What ICE 7th ed. could not do was change the position in those other (many) contracts which do not have an equivalent. Those contracts, including standard forms and "bespoke" contracts, still embody the possibility of a distinction between situations where the nonpayment/under-payment is "wrongful" or "improper" and those where it is not, the interest provisions applying to the former but not the latter. Arbitrators considering the use of their (wide) s.49 powers to award interest may conclude that a persuasive analysis is to be found in the case law discussed above. ICE 7th ed. could not wipe out this body of authority deriving from its predecessor editions which may still be influential in contractors' claims for interest, and employers' resistance of those claims, wherever other contracts are used.

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