Contractors may keep the advance if wrongfully terminated

From time to time, contractors fall out with agencies and clients even before the work on a contract begins. This situation affects construction contractors and engineers more than most others, but it could happen to any of us.

Suppose you have signed a contract, and received an advance payment under the terms of that contract. When you show up to do the job, a problem arises with the client and you fall into a disagreement.

This is what happened to a construction contractor called Dezigner Living this year, and the disagreement wound up in court. The court decision rendered last September, is critical for contractors who depend upon advances to complete jobs. So often, we receive these advances and then spend a great deal of time preparing for the contract, so it is good to know that we need not return the money if the client suddenly experiences a change of heart, or a undergo a mental challenge, as it were.

Says Geoff Brewer of the London-based Brewer Consulting, an expert on contracting law: ''You are now entitled to receipt of advance payments if the contract is terminated unlawfully.''

The London-based Dezigner Living contracted with a client named Olga Mirimskaya to rebuild a house in West London in June 2005. Dezigner Living was to be engaged to carry out a very large number of proposed works to the property. These were divided into phases, and the company was to be paid an advance before each phase began.

So Dezigner Living collected a large advance, and began the preparatory work while waiting for planning permission and building control approval. The preparatory process, for whatever reason, took longer than expected and by November 2006, Mirimskaya became concerned about the time taken for progress.

At this point, Mirimskaya declined to pay any further advances, and ultimately Dezigner Living was obliged to abandon the work. Mirimskaya finally obliged them to leave the site.

Dezigner Living refused to give back the advance payments. So Mirimskaya took them to the Technology and Construction court in September, 2006.

The judge looked carefully at the history of dealings between the two parties. What the judge considered critical was that Dezigner Living had arranged for advance payments with the specific purpose of providing funds to complete the job.

In fact, this is what all of us contractors do when we work on an advance basis. We ask for funds to enable us to get through. It's not just a fee, it's an enabler to work, and it is used to put in the time and materials necessary to get the job done.

The judge saw it the same way. The judge ruled that, even though Dezigner Living had not completed the work for which the advances were paid, that it was entitled to keep them. Mirimskaya did not have the right to hold off paying the advances nor to repudiate the contract. Mirimskaya terminated it wrongfully, the judge said, and so the money stays with the contractor.

''The judge pointed out that the contract between the two parties did not specify a time frame for phase completions,'' Brewer explains. Mirimskaya, an accomplished businesswoman with a habit of command, believed that she could dictate terms as the project progressed. Nonetheless, Dezigner Living did not have the right to further payments; the contractor could not claim all of the payments because the work was not completed, the judge continued.

So we can accept advances and begin work on projects, and rest easy that we don't risk losing our advances if it all, as it will from time to time, goes pear-shaped.