United Utilities v Northstone (2026)
Neutral citation: United Utilities Water Ltd v Northstone (NI) Ltd [2026] EWHC 1057 (TCC)
Date: 6 May 2026
NEC contract topics: Payment notices, pay less notices, adjudication enforcement, Option Y(UK)2, clause 50 assessments, project manager certification, amended payment procedures, CEMAR administration.
Form of contract: NEC3 Engineering and Construction Contract April 2013 originally under Main Option C with bespoke amendments, later amended through a Settlement Agreement and Deed of Variation to operate on an amended milestone-based Option A payment structure.
Main areas of law: Construction adjudication, payment notices, Housing Grants Construction and Regeneration Act 1996, contractual interpretation, Part 8 procedure, adjudication enforcement.
Background and the Dispute
In United Utilities Water v Northstone (NI) the Technology and Construction Court considered an adjudication enforcement dispute arising from a heavily amended NEC3 Engineering and Construction Contract relating to the West Cumbria Supply Project.
United Utilities Water Limited (“UU”) contracted with a joint venture comprising Northstone (NI) Limited trading as Farrans Construction (“Farrans”) and Roadbridge Limited for the construction of approximately 32 kilometres of aqueduct and 24 kilometres of water mains pipelines forming part of the West Cumbria Supply Project.
The original contract, entered into on 30 March 2017, used the NEC3 ECC April 2013 edition under Main Option C with bespoke amendments and an original total of the Prices of approximately £85 million. Following disputes and commercial difficulties during delivery of the project, the parties later entered into both a Settlement Agreement and a subsequent Deed of Variation. These arrangements increased the Prices first to £95 million and then to approximately £131.6 million.
The Settlement Agreement also changed the contractual payment structure from Option C to an amended Option A milestone-based arrangement. Evidence before the Court showed that compensation event disputes had become increasingly frequent and that forecast pain share exposure under the original target cost mechanism was worsening. UU was concerned that delays and deteriorating commercial behaviour on the project could adversely affect related contracts within the wider infrastructure programme.
The revised payment arrangements accelerated the payment cycle substantially and introduced milestone-based payments. Under the amended regime, an assessment date occurred upon completion of a milestone. The Certification Date occurred seven days after the later of the assessment date and receipt by the project Manager of the Contractor’s application for payment. Payment became due one day after the Certification Date and the final date for payment occurred seven days after the due date
The dispute concerned Payment Assessment PA-70 issued through the CEMAR contract administration platform in October 2024. The joint venture submitted applications for payment relating to Milestones 9 and 11. The project manager accepted that milestone 9 had been achieved but notified the joint venture that milestone 11 had “not yet achieved completion” and identified aspects of the work which, in the project manager’s opinion, remained incomplete.
On 11 October 2024 the project manager issued PA-70 through CEMAR in response to both applications for payment. The project manager assessed the “amount due” as a negative payment of approximately £3.27 million pursuant to clause 50.2.
The judgment is notable because it considers whether an NEC project manager’s payment certificate can operate as a valid payment notice requiring payment from the contractor to the employer. Clause 50.2 required the project manager to assess the Price for Work Done to Date, plus other amounts due to the contractor, less amounts to be paid by or retained from the contractor. The wording of clause 51.1 was also important. It expressly provided that:
“A payment is made by the Contractor to the Employer if the change reduces the amount due.”
The project manager’s assessment therefore reflected a contractual mechanism capable of producing a negative certified sum. In practical terms, the project manager considered that previous payments and deductions meant that money was payable from the contractor to UU. Farrans argued, however, that the appearance of a negative figure within a payment certificate did not automatically amount to a valid payment notice asserting an entitlement to repayment by the employer.
The joint venture subsequently responded by purporting to issue a payment reduction notice under clause Y2.3 whilst simultaneously maintaining that no such notice was legally required. The notice asserted that the amount due to UU was nil.
UU argued that the purported payment reduction notice had been served out of time. UU contended that because PA-70 had been issued on 11 October 2024, the last date for valid service of any responsive notice was 12 October 2024. However, the purported payment reduction notice, although dated 17 October 2024, was not received until 18 October 2024 and UU therefore argued that it was six days late.
The dispute proceeded to adjudication. The adjudicator decided in favour of UU and ordered Farrans to pay £3,269,328.05 plus VAT within seven days. Following enforcement proceedings, the Court granted summary judgment together with interest and £62,254.69 plus VAT in respect of the adjudicator’s fees. Farrans resisted enforcement by commencing Part 8 proceedings, arguing:
- PA-70 was not a valid payment notice; and
- alternatively, no pay less notice was required.
Legal issues
The principal issue before the Court was whether the issues raised by Farrans were suitable for determination within Part 8 proceedings as part of an adjudication enforcement challenge.
Farrans argued that PA-70 was invalid because it was unclear and ambiguous. In particular, Farrans relied upon the fact that the CEMAR system displayed a payment due date of 8 November 2024, which was inconsistent with the accelerated contractual payment timetable relied upon by UU. Farrans argued that where contractual payment periods are extremely short, payment notices must be sufficiently clear and unambiguous so that parties know precisely what must be done and by when.
A further issue concerned the nature of the project manager’s payment certificate itself and whether a negative certificate constituted a valid “notified sum” under the Housing Grants, Construction and Regeneration Act 1996.
Farrans argued that the information contained within PA-70 was confusing because separate milestone assessments appeared within supporting schedules, whilst the assessment tab displayed a single negative figure of £3,269,328.05 under the heading “this payment”. Farrans also argued that the certificate did not clearly state in positive terms that the contractor was required to pay UU that amount.
Counsel for Farrans submitted that:
“A statement that a negative figure is due does not equate to a valid payment notice asserting a right to be paid.”
Farrans therefore distinguished between a valuation showing an overpayment and a payment notice expressly requiring repayment. Although Farrans accepted that the amended NEC mechanism permitted UU to recover overpayments in principle, it argued that a negative valuation alone did not necessarily amount to a valid statutory payment notice triggering the payment obligations under section 111 of the Construction Act. Counsel for Farrans submitted that “saying that I owe you minus £3m is not the same as saying you owe me £3m”.
The case therefore highlighted the interaction between NEC’s assessment-based payment structure under clauses 50 and 51 and the statutory concept of a “notified sum” under the Construction Act. UU, by contrast, relied upon the amended payment provisions and the wording of clause 51.1 itself, which expressly contemplated circumstances where payment could flow from contractor to employer. UU also relied upon Everwarm v BN Rendering, which recognised that following the 2011 amendments to the Construction Act, parties may alternate between the roles of payer and payee depending upon the contractual payment mechanism.
UU further argued that the project manager’s role under NEC was important. Relying upon Costain v Bechtel, UU submitted that the project manager was exercising an independent contractual certification function rather than simply acting as UU’s agent.
Judgment
Her Honour Judge Kelly rejected Farrans’ contention that the issues raised were straightforward matters suitable for determination under Part 8 proceedings.
The Court held that the validity and interpretation of PA-70 could not properly be assessed without considering the factual matrix surrounding the amended contractual arrangements and the parties’ practical administration of the payment regime. HHJ Kelly emphasised that contractual notices must be interpreted objectively by considering how a reasonable recipient “circumstanced as the actual parties were” would have understood them.
Importantly, the Court accepted that the role and independence of the project manager formed part of the relevant contractual context. HHJ Kelly noted UU’s submission that the project manager was exercising an independent certification role and that Farrans’ arguments improperly treated the project manager and UU as effectively identical.
UU also argued, relying upon Everwarm v BN Rendering[i], that the amended payment provisions expressly contemplated circumstances in which both UU and Farrans could alternately become payer or payee depending upon the operation of the contractual payment mechanism.
Nevertheless, HHJ Kelly deliberately avoided finally determining whether PA-70 constituted a valid negative payment notice, whether a negative amount automatically created a repayment obligation, or whether a pay less notice was legally required in response.
Instead, the Court held that those issues could not properly be resolved without fuller factual investigation regarding how the payment regime had operated in practice, how CEMAR had historically been used, what the parties understood concerning incorrect autogenerated dates and how a reasonable recipient would have interpreted the project manager’s certificate in its factual context.
The Court therefore declined to determine the substantive validity arguments and granted summary judgment enforcing the adjudicator’s decision in favour of UU.
NEC contract learning points and implications for the construction industry
The judgment highlights the difficulties that may arise where amended NEC payment mechanisms interact with the statutory payment regime under the Construction Act.
The case demonstrates that heavily amended NEC clauses 50 and 51 can create a contractual payment mechanism capable of producing an assessment in which money is payable from the Contractor to the employer. Clause 50.2 expressly permits amounts payable by or retained from the Contractor to be included within the assessment, whilst clause 51.1 states that “A payment is made by the Contractor to the employer if the change reduces the amount due.” However, HHJ Kelly deliberately declined to determine whether PA-70 itself constituted a valid statutory payment notice requiring repayment by Farrans to UU. The Court instead concluded that those issues required fuller factual investigation and were therefore unsuitable for determination within Part 8 proceedings.
The judgment also highlights unresolved questions regarding how clearly such certificates must communicate repayment obligations in order to constitute valid statutory payment notices. Farrans’ argument that “I owe you minus £3m is not the same as you owe me £3m” illustrates the distinction between a negative valuation and a legally effective demand for payment. The case demonstrates the potential difficulties which may arise where NEC contracts are heavily amended, milestone payment structures are introduced and accelerated payment cycles operate through digital administration systems such as CEMAR.
The judgment also reinforces the importance of the project manager’s independent certification role within NEC contracts. UU argued that the project manager was not simply acting as UU’s agent but was exercising an independent contractual assessment and certification function consistent with authorities such as Costain v Bechtel. HHJ Kelly accepted that the project manager’s role and independence formed part of the relevant contractual context when considering the interpretation of the notices.
Although HHJ Kelly ultimately declined to determine the substantive payment notice issues, the case demonstrates that NEC payment certificates can operate in a more complex manner than traditional interim certificates under other standard forms. contractors and employers using amended NEC payment regimes should therefore ensure that
- payment notices clearly identify whether payment is being demanded or withheld,
- the contractual basis for any negative assessment is expressly stated,
- digital administration systems accurately reflect amended payment timetables and
- the parties understand the consequences of failing to issue responsive notices within very short contractual timescales.
[i] Everwarm Ltd v BN Rendering Ltd [2019] EWHC 3060 (TCC)