Summer 2020 Construct.

Construct.Law Winter 2020

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Contents Introduction

Modular : Addressing deposit payments Welcome to the latest edition of Construct.Law. Our winter edition in building focuses on topical legal issues affecting the construction, Page. 4 and projects sector at the end of a uniquely challenging year. Articles Andrew Keeley address a wide ranging selection of topics across the lifecycle of a Partner (Editor) ‘Fixing’ the final date project, from modular construction to termination. There is the usual Construction for payment under construction contracts round up of cases, including some significant decisions Page. 6 regarding enforcement by insolvent companies. We also continue our T: +44 (0)14 8325 2581 essential law series on variations. [email protected] Omitting works from an NEC : Valuation under the contractual mechanism We hope you enjoy reading this edition of Construct.Law. Please do Page. 8 get in touch if you would like to discuss any of the issues covered by Construct.Law or if there are any topics which you would like us to cover Common issues with termination of in future editions. construction contracts Page. 10

Routine Maintenance or Major Repair? The meaning of ‘design life’ obligations Page. 12

TCC stays proceedings where smash and grab decision remained unpaid Page. 14

An uphill battle? Adjudication enforcement by an insolvent company Page. 16

Home owner warranty claims: when does the clock start ticking? Page.18

First known case to order enforcement of an adjudicator’s decision in favour of a company in administration Page. 20

Essential law: Variations - Part three Page. 22

Essential law: Variations - Part four Page. 24

Contributors & about the & projects group Page. 26

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Vesting certificates Modular construction: its own right but for present purposes it is sufficient to note that, in the event that Advance payment bonds and step-in the contractor becomes insolvent, the rights are primarily designed to manage addressing deposit payments employer could not recover the advance the risk of the main contractor becoming payment under a performance bond until insolvent. However, what about the risk in building contracts the works had been completed and its that the modular manufacturer becomes overall losses ascertained. On-demand insolvent? This is primarily the risk of the Modular construction has become increasingly popular in recent bonds tend to be expensive (and, in some main contractor who would remain under cases, contractors are simply unable a contractual obligation to the employer to years. Once synonymous with ‘pre-fab’ houses and concrete tower to provide them) but they should allow deliver the modular elements of the project blocks, the potential cost, programme and quality benefits mean it an immediate pay out if the contractor notwithstanding the insolvency of the is now seen as a potential solution to the existing housing crisis becomes insolvent with any advance modular manufacturer. payment outstanding. Christopher Busaileh, Senior Associate, Construction, Engineering & Projects Ideally, and as with an employer, the main The other drawback from the contractor’s contractor would obtain an advance perspective is that if they provided an payment bond from the modular advance payment bond to the employer manufacturer to mitigate this risk where up- without getting a back to back bond front payments are required. However, the from the modular manufacturer, they main contractor (and the employer) might would be taking the risk of the modular also consider obtaining vesting certificates manufacturer’s insolvency. They would over off-site components or their have to source an alternative modular constituent parts. Vesting certificates can manufacturer without being entitled to make clear that ownership has passed, that further payment from the employer. the offsite items are adequately insured, are set apart and identifiable as the Step-in provisions of the main contractor or employer. A more cost-effective solution could be to Importantly they give the main contractor include a contractual mechanism to allow or employer a right to access the modular Modular construction does, however, give those materials are delivered to site. payments for the modular manufacturing the employer to step in to the contractor’s manufacturer’s premises to retrieve these rise to a number of potential legal issues. before the relevant items are delivered agreement with the modular manufacturer items should the modular manufacturer In this article we will consider one such There may be exceptions to this where to site. However, this potentially means in the event the contractor becomes become insolvent or not deliver the items issue concerning payment protection for payment can be made prior to delivery the employer would take the risk of the insolvent. The easiest way to achieve this to site as required. the employer. if certain conditions are met. These contractor becoming insolvent before the would be to include step-in provisions in a conditions often include the relevant items items are finished and delivered to site. collateral warranty between the modular Vesting certificates are only possible if there The problem being identified in the building contract, manufacturer and the employer. Such is something that has been manufactured Often the modular manufacturer is a sub- that ownership in the item has vested Advance Payment Bond provisions would stipulate that, in the that can then “vest” in the main contractor contractor/ supplier to the main contractor. in the contractor being provided, that it is Perhaps the safest option for the employer event the contractor becomes insolvent, and/or the employer. Further, they are only This is particularly the case where only insured and that it is set aside and labelled at is to have any upfront payment secured by the employer would have the option of useful where those parts could be used by specific elements of the building (for the off-site premises. an on-demand bond. Advance payments ‘stepping in’ to the contractor’s position a replacement modular manufacturer. In example, bathroom pods in a hotel) are can be made to cover the payments under its agreement with the modular that sense, they are only an effective form constructed off-site as opposed to the The problem here is that these conditions required by the modular manufacturer. The manufacturer. of protection from the point when useable entire development. The nature of off-site cannot be satisfied where an item is yet advance payment is re-paid by deductions components have been manufactured. manufacture means that factory slots need to be manufactured or is in the process from subsequent payments due to the The risk for the employer is that, when to be reserved, often months in advance of being manufactured. Therefore, the contractor. For example, the payments stepping in, he takes on all existing and typically a modular manufacturer will contractor has no right to recover these that would be due when the off-site items liabilities of the contractor to the modular Conclusion require a deposit payment before a slot is payment from the employer unless it has a are delivered to site. The monies would be manufacturer. If, despite the employer Ultimately, the solution to this issue will depend on the circumstances of the parties reserved. The modular manufacturer will specific entitlement to an advance payment secured by a bond so that the employer can paying the contactor for sums due to the and the amount of the payments required before the relevant items are delivered then usually require further payments to be under the building contract. recover its advance payment in the event modular sub-contractor, this has not been to site. In some cases an employer may be willing to take on the risk of contractor made during the manufacturing process that the contractor becomes insolvent passed on to the modular manufacturer, insolvency and make the payments. In other circumstances, the value of those and before the items are ready for delivery Possible Solutions before the entire sum has been repaid. the employer would effectively have to pay payments and the wider project is such that an advance payment bond is justified. to site. The contractor could use its own cash twice. That said, this risk could be mitigated What parties should ensure in any project involving modular construction is that the reserves to fund the payments to the The main drawback is one of cost. by having robust payment provisions in the payments required by the modular manufacturer are discussed at tender stage and The problem is that such payments are modular manufacturer. However, if the Depending on the extent of the advance main contract where the contractor would an appropriate payment arrangement agreed. The last thing either party wants is not adequately covered in the payment project requires a substantial amount of payment required, a bond may be need to provide proof of payment to the to get to a point where a factory slot needs to be reserved in order to keep to the provisions in standard form building modular manufacturing this is unlikely to be prohibitively expensive. For the employer to supplier before being entitled to payment programme but with no agreement as to who is responsible for taking the risk of contracts. These tend to assume that acceptable to a contractor as it could have a be properly protected an advance payment from the employer. that payment. ‘traditional’ construction methods are used significant impact on their cash flow. bond needs to be on-demand in nature. and therefore the contractor’s right to The alternative is to amend the payment The distinction between on-demand and payment for materials usually arises when provisions so that the employer makes performance bonds merits an article in

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‘Fixing’ the final date contract stated both that the invoice should The key point was that while the Act allows Contracts that do not contain valid final be issued in accordance with a payment the contract to specify “a mechanism” to date for payment provisions will have the schedule, which did not exist, and that the determine when payments become due, it relevant provisions replaced by the Scheme. for payment under payment certificate (which had not been referred to the parties agreeing “how long This provides a final date for payment provided) should be issued with the invoice. the period” is to be between the due date 17 days after the due date, which could construction contracts The contract did not spell out what the and final date for payment. be significantly shorter than the period subcontractor should have done where no otherwise provided by the contract. This Parties to construction contracts are typically well aware of the payment certificate was issued. The accepted that this permits the could mean that payless notices that would due date to be fixed by reference to the otherwise be valid could be out of time, payment regime the Construction Act imposes, including the The court said that the Act was intended occurrence of an event (as is often the case with all the consequences of smash and employer’s obligation to pay the contractor all notified sums to ensure certainty over the dates on for projects using milestone payments). grab and obligations to pay in full by the final date for payment. This may create a problem which sums should be paid, and that this is However, when it comes to the final date the notified sum that would follow. This is for the employer if the contractor does not provide a valid VAT precisely what the contract failed to achieve. for payment, this must be a fixed period of something that parties may seek to take invoice in respect of the notified sum. The Act requires the The contract referred the subcontractor to time after the due date. It cannot be set advantage of in the event of a payment employer to pay the sum due (including any VAT). However, if one of two items (the payment schedule by reference to an event, or the issue of an dispute. or the payment certificate), neither of invoice or notice. it does not receive a valid VAT invoice, this could create VAT which existed, to determine when to Payers should therefore carefully consider accounting problems for the employer and, potentially, lead to issue its invoice. There was accordingly no There were two further provisions the court when the period for serving a valid payless an inability to reclaim the VAT. certainty as to when the invoice should be also found to be relevant on this point. The notice will actually expire if the final date for issued, making it an unsuitable basis for first was section 109(2) of the Act, which in payment under their contract is replaced Christopher Hadnutt, Associate, Construction, Engineering & Projects determining the final date for payment. effect gives the parties complete freedom by the final date for payment under the Further, the court could see no reason to to decide the circumstances under which Scheme. excuse the contractor’s failure to issue a stage payments become due. This was held payment certificate, which forms part of to be in marked contrast to the wording of the statutory payment regime, by reference section 110(1)(b). to the non-issue of an invoice, which has no under the statutory The second point was the Act’s prohibition regime whatsoever. against ‘pay when certified’ clauses and A common solution for employers (and payment notice was issued well out of Importantly, the payment schedule referred prohibition against the due date being linked for main contractors in respect of their time and, as a result, the contractor was to in this provision was not ultimately The legal issue to the issue of a notice by the payer. The subcontractors) is to link the final date for required to pay the sum claimed by the incorporated in the contract. The court was able to decide the matter on relevant sections make no mention of the payment to the submission of a valid VAT subcontractor in full. The contractor the basis of the factual argument. However, final date for payment. The court held that invoice for the notified sum (i.e. so that complied with the adjudicator’s decision, Rochford’s position on the final it did go on to comment on the ‘legal’ the prohibition against such clauses would it is a certain number of days following and then brought fresh court proceedings date for payment argument. be frustrated if the employer was permitted the submission of the VAT invoice). This to obtain a final decision on the matter. As the contract stated: “Payment terms to introduce such practices as a means to seeks to ensure that the employer will thirty days from invoice as per attached This principally related to the wording of determine the final date for payment. This not be obliged to pay until it knows its This article will focus on the question as to payment schedule”, the contractor argued section 110(1) of the Act, which states: would clearly be contrary to the aims of VAT position is covered. However, the what the final date for payment was (and that, notwithstanding the fact that no the Act. The court held that the inference recent decision of the TCC in Rochford therefore whether the payment notice payment schedule existed, this provision “110 Dates for Payment is that the possibility to peg the final date Construction Limited v Kilhan Construction could function as a pay less notice). established a final date for payment which of payment to an event rather than a fixed Limited has arguably put an end to the was 30 days from the date on which the 1. Every construction contract shall – period was never considered acceptable validity of this practice. The contract terms subcontractor issued the corresponding under the Act. (a) provide an adequate The contract did not contain detailed invoice. As the subcontractor never issued mechanism for determining The dispute in Rochford v Kilhan payment provisions. The relevant wording an invoice, the payment notice could not Consider your final date for what payments become due The contractor, Rochford, had appointed was limited to the following: have been issued late. payment terms under the contract, and when, Kilhan as its subcontractor in connection Many employers and main contractors will and with the construction of the reinforced “The brief description of subcontractor The subcontractor raised two be concerned by the court’s comments in concrete frame on a project. The works to be carried out counterarguments. The court described this decision, as it is common practice to link (b) provide a final date for payment subcontractor made an application for one of these as legal and one as essentially the final date for payment to the provision in relation to any sum which payment for just under £1.4 million on 20 Works are lump sum…RCL will issue factual. Ultimately, although the case was of a valid VAT invoice. Although it is arguable becomes due. The parties are May 2019, covering the period to 30 April activity schedule to KCL, application decided on the factual argument, the that it is within the contractor’s power to free to agree how long the 2019. The contractor issued an interim date end of month…commercial… court agreed with the subcontractor in ensure that a valid VAT invoice is issued, and period is to be between the payment notice on 23 October 2019, valuations monthly as per attached both instances. it should therefore bear the cash flow risk of date on which a sum becomes certifying just over £1.2 million. payment schedule end of month. failing to do so, this decision appears to rule due and the final date for Payment terms thirty days from invoice The factual issue out the validity of such a practice. payment.” A dispute arose and the adjudicator decided as per attached payment schedule. S/C The ‘factual argument’ centred on the that the final date for payment in respect payment cert must be issued problem that there was no clear means for Parties should therefore look closely at the of the subcontractor’s application was 19 with invoice.” the subcontractor to determine when it was final date for payment terms under their June 2019. Accordingly, the contractor’s supposed to issue its invoice. The construction contracts.

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Omitting works from an NEC Background Dragados was the main contractor for the design, management and construction contract: Valuation under the of the Aberdeen Harbour expansion. Van Oord was engaged by Dragados as contractual mechanism its subcontractor to complete the soft- dredging works under the NEC3 form of The recent decision in Van Oord v Dragados [2020] CSOH 87, subcontract (Option B). is a useful reminder to parties to construction contracts about As the works progressed through 2018 the potential dangers of varying the scope of works under the and 2019, Dragados began to instruct the contract and how such variations may be assessed under the omission of certain works from the scope contract, in particular under an NEC form of contract. of Van Oord’s subcontract. The works were not simply omitted, but were given to another sub-contractor to complete. Eveline Strecker, Knowledge Development , Construction, Engineering & Projects As a result, Van Oord was denied not only Anna Sowerby, Trainee , Construction, Engineering & Projects the opportunity to carry out a significant portion of its works but its profit on those works.

The matter went to adjudication with the adjudicator finding largely in favour of Dragados. ‘Defined Cost’ under NEC v bill of rates? Dragados argued that the compensation The decision the Subcontract Works Information by should then be assessed in accordance with events mechanism was appropriate for all In relation to the first issue, Lord Tyre in the way of the omission of works. Despite it the contractual mechanism. compensation events, including breaches Scottish Court of Session did not identify being a breach, the omission of works was of contract. As the omission of works a contractual entitlement for Dragados considered to be a ‘compensation event’ This decision highlights the fact that constituted a compensation event under to omit the works and transfer them to under the NEC subcontract, meaning that contractual compensation mechanisms the NEC subcontract, Dragados claimed another sub-contractor. The Court noted it would fall to be considered within the may not work in your favour, even in that this reduced the total amount payable that even if the variations clause provides compensation event mechanism. The circumstances where the other party has to Van Oord for the remaining works to be for omissions to be made from the scope of Court held that this was the only method of breached the contract. carried out. The amount payable for the works, this does not necessarily mean they assessment, even if it resulted in Van Oord works which remained should be valued on can be given to a third party to complete. being entitled to a reduction in payment. Although this was a Scottish decision, it is the basis of the ‘Defined Cost’ (the actual more widely relevant as the NEC contracts costs), rather than the amounts included in The principles identified in the English Lord Tyre identified that the use of the are used extensively across the UK. Care Van Oord’s bill of rates. decision in Abbey Developments Limited v compensation calculation in the NEC should be taken when it comes to drafting PP Brickwork Limited [2003] EWHC 1987 subcontract, which is based on identifying and negotiating variation clauses. If changes Van Oord commenced court proceedings (TCC) were followed in this case, namely: the ‘Defined Costs’, was a more objective to the scope of works are envisaged, and contended, among other things, that: way of giving effect to the change to the ensure that the contract properly provides • The contractor has a duty to carry out scope of works, including a change that for this so that the affected contractor (or • Dragados was not entitled to give the the work and has the right to complete occurs as a result of a . subcontractor as in this case) is no better or work omitted from Van Oord’s scope of the work; worse off. work to another sub-contractor; • Variation clauses must be considered Going forward • this amounted to a breach of contract; carefully, so as not to deprive the It is unsurprising that the Court held that and contractor of their right to complete the omitting the scope of works and giving • Dragados was not entitled to reduce work – there must be wording entitling an these works to another party was a the amount payable to Van Oord, rather omission of work and giving it to another breach of contract. However, parties to payment should have been made on the contractor; and construction contracts, in particular an basis of the original bill of rates. • The reason or motive behind the NEC form of contract should take note omission is irrelevant. The entitlement of the Court’s use of the contractual to omit work and give it to another compensation mechanism as a means of to complete all turns on whether the assessing the consequences of omitting contractual clause allows for the change. works. Just because the instruction, i.e. the omission of works, resulted in a breach of The Court also identified that there was contract, this did not prevent it from also a breach, being the instruction to change being a change to the subcontract which

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Common issues with Failure to pay may entitle the contractor to be decided by a court or adjudicator, and contract and insist on performance. been established; to terminate, although the contractor there is usually a considerable element While you need not accept the repudiation • ensure the site is safe: when the must also be careful to strictly follow the of risk when relying on this ground. It is immediately, if you delay there is a risk that employer regains control of the site from termination of contractual notice requirements before insufficient that the contractor is simply you will eventually be deemed to have the contractor, the employer will owe a suspending or terminating, to avoid running late, as liquidated affirmed the contract by your inaction and duty to lawful visitors to see that the site construction contracts inadvertently breaching the contract provide a remedy for delay. An unjustified waived your right to terminate. You may is safe for the purposes of their visit; themselves. contractual termination might be itself therefore wish to protect your position by • ensure that the works are adequately deemed a repudiatory breach by One noticeable consequence of the COVID-19 pandemic has been expressly reserving your rights. There is also protected against damage following the In recent months, the contractual right to the employer. a risk that the offending party will rectify its removal of scaffolding, temporary roofing an increase in the number of disputes relating to the termination of terminate following a defined period of breach and thereby end any continuing right etc; and construction contracts. suspension has attracted attention as, for There is a similarly subjective right to to accept the former repudiation. • undertake an immediate audit of on-site example, either party might be entitled to terminate under the JCT sub-contracts: plant, equipment and materials and a Andrew Keeley, Partner, Construction, Engineering & Projects terminate if the works are suspended for following 10 days’ notice of default, the Contracts may also be ended by illegality, valuation of work done at the date two months due to a force majeure event. contractor may terminate if the sub- mistake or frustration, although these are of termination. This could arguably include COVID-19, contractor “without reasonable cause fails relatively rare in a construction context. although the Government’s revised to proceed with the Main Contract Works guidance for construction sites states that so that the reasonable progress of the Sub- Practical tips work may continue, if done safely. Contract Works is seriously affected” Assess whether the right to terminate is likely to have arisen – serving an unjustified Other contractual grounds for termination Time-permitting, an employer might be notice of termination could itself be a can be more controversial. Clause 8.4.1.2 able to obtain some comfort in advance by repudiatory breach of contract, allowing of the JCT Design and Build Contract 2016 seeking a declaration from an adjudicator the other party to sue for damages. A and JCT Standard Building Contract 2016 prior to termination, although this would termination notice cannot be revoked once states that the Employer can terminate if: still risk a conflicting final determination by a given. It is notoriously difficult to predict court or arbitrator. which party’s interpretation of the facts will • the Employer gives notice that the be favoured by a court or adjudicator, whose Contractor is failing to proceed “regularly • Repudiation ultimate may turn on a clinical In May 2020 the Construction Leadership by mutual consent. This enables both and diligently” with the works; and In addition to express contractual rights, analysis of ill-tempered correspondence, Council published ‘Best Practice Guidance’ parties to avoid the cost and uncertainty of • the default is continued for 14 days from every party has a right to hastily written in the heat of the moment. for dealing with contractual issues caused a legal dispute, providing the agreed terms receipt of that notice. terminate a contract on grounds of the Therefore, before seizing an apparent by COVID-19. The guidance aimed are carefully documented. most serious breach. A breach that gives opportunity to terminate a contract, you West Faulkner to encourage collaborative behaviour, The leading case is rise to this right is known as a repudiatory should consider your options and • Contractual termination Associations v London Borough of Newham warning that without fair and reasonable breach. This includes: strategy carefully. administration of contracts, COVID-19 Consultant appointments usually include a (1994) 71 BLR 1, in which the Court of could have a significant and detrimental right for one or both parties to terminate at Appeal held that: • breach of a ‘condition’ i.e. a fundamental If relying on a contractual termination right, effect on the construction industry. will, without giving a reason (also known as “Taken together, the obligation upon term whose every breach will trigger the carefully check the notice provisions. For termination for convenience). In contrast, the contractor is essentially to proceed right to terminate; or, more commonly example, a JCT Standard Building Contract One suggestion was that “The parties termination rights under building contracts continuously, industriously and efficiently • breach of an ‘intermediate terms’ i.e. a 2016 provides that: should consider agreeing to waive any are usually much more limited, reflecting with appropriate physical resources so as term whose breach is only repudiatory relevant termination triggers in the the greater investment required by to progress the works steadily towards if it deprives the aggrieved party of • termination notices should be delivered contract”, for example, if it is necessarily contractors when taking on projects. completion substantially in accordance with substantially all the benefit that was by hand or sent by Recorded Signed for to temporarily suspend the works due to the contractual requirements as to time, intended under the contract. or Special Delivery Post; and COVID-19. Insolvency almost invariably gives rise sequence and quality of works…” • notice of default should be given by to a contractual right to immediately Keating on Construction Contracts (10th For example, a complete refusal to perform the /Contract Administrator In some cases we have indeed seen terminate, although it is important to check Ed) suggests at para. 20-085 that: the contract by one party is likely to be a whereas the subsequent notice of commendable examples of collaboration. the specific definition of insolvency in the repudiatory breach. In contrast, mere delay termination should be given by However, we have also seen a significant relevant contract. For example, it may be “This construction is very wide by the contractor is unlikely to amount to a the Employer. rise in disputes, as parties seek to escape necessary to wait until a formal winding-up and would appear to have the repudiation unless time has been made of from contracts in light of new and order has been made. consequence that almost any failure the essence. Even failure to attend site for On or before termination, employers unforeseen commercial pressures. by the Contractor to comply with a several days may be insufficient to should: If the contractor has completely major contractual requirement would an intention by the contractor to repudiate Ways to terminate abandoned the site, this is also likely amount to a failure to proceed regularly his contractual obligations if, for example, • ensure that the appropriate insurance There are a number of ways in which a to provide a relatively straightforward and diligently, thereby putting the he has retained some plant and equipment policies are in place, as the contractor’s contract may be prematurely brought to an basis for termination (e.g. JCT clause Contractor at risk of a determination on site. insurance obligations are likely to end on end. The most common are: 8.4.1.1), although it may be necessary to notice under Cl.8.4.1.2.” termination of the building contract; give a warning notice first, and allow the A repudiatory breach gives rise to a claim for • secure the site as quickly as possible • Agreement contractor a period of time to rectify Nevertheless, the question of whether a damages, like any breach of contract. The to prevent unpaid subcontractors and If the parties are able to agree commercial the default. contractor is failing to proceed regularly and innocent party can choose whether to treat creditors removing plant, equipment and terms, then the contract can be terminated diligently with the works is a subjective issue the contract as discharged or affirm the materials until title in the goods has

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Background without major repair being necessary”. Routine Maintenance or it to have a lifespan equal to the contractual Maintenance is defined in the same Blackpool Borough Council appointed design life, and any failure to achieve this standard as being the “set of activities Major Repair? The meaning of Volkerfitzpatrick Limited (VFP) under a would constitute a breach of contract performed during the working life of the form of NEC3 contract with amendments (regardless of any evidence that the structure in order to enable it to fulfil to design and build a new tram depot as contractor has designed the works using the requirements for reliability”.” ‘design life’ obligations part of a major upgrade to the long-running reasonable skill and care). Blackpool tramway system. The meaning of ‘design life’ The court noted the importance of The TCC recently handed down its judgment in Blackpool Borough VFP’s works were completed in 2011 and The Council’s claims centred on whether recognising that no asset can be expected Council v Volkerfitzpatrick Limited, which included claims that the brought into operation in 2012. The Council VFP had met its contractual design life to perform throughout its entire design upgrade of the Blackpool tram depot failed to meet its design life. The complained that several elements of the obligations in respect of certain works. life without any maintenance at all. The detailed judgment addressed a variety of interesting issues. However, new depot suffered from corrosion so soon In order to assess this, the court had to key distinction is between “anticipated this article will focus on the helpful guidance given by the court in after installation as to put VFP in breach consider what is meant by the term ‘design maintenance” and “major repair” – while of its obligations to design the works to life’, as the contract itself contained some routine maintenance is expected, an respect of what is meant by ‘design life’ where the term is not defined achieve the contractually specified design no definition. asset should not require major repair during in the contract. life. The Council claimed for repairs to its design life. the corroded elements of approximately In addressing this question, the court Christopher Hadnutt, Associate, Construction, Engineering & Projects £6,700,000. However, the amount awarded drew upon two British Standards: BS ISO What exactly constitutes “major repair” to the Council was just over £1,100,000, 15686-1:2000 (‘buildings and constructed was determined to be a matter of “fact and and a large proportion of this difference assets – service life planning’) and BS EN degree in any given case”. In the present came down to the court’s interpretation of 1990:2002 (‘basis of structural design’). The case, the court took guidance from a the design life requirements applicable to court summarised the position in these contractual requirement that any required certain parts of the works. documents as follows: maintenance of the works should not include anything which is ‘non-standard’ or Contractual clauses “BS ISO 15686-1:2000, entitled ‘unusually onerous’. The court concluded The Works Information contained a “buildings and constructed assets that these contractual provisions could general statement that “unless otherwise - service life planning”, contains a illustrate the sort of repairs that might be specified in the Functional Procurement definition of design life as the service ‘major’ for the purpose of assessing Specification, [the works] have a design life life intended by the designer. In turn design life. of at least 20 years”. the service life is defined as the period of time after installation during which a This finding was relevant to a determination The contract also contained a ‘Functional building or its parts meets or exceeds that VFP was in breach of the design life Procurement Specification’, which set out the performance requirements. A obligation in respect of blistering to the wall various requirements applicable to the performance requirement is defined as cladding panels. It was accepted that the works, including a requirement for a 50 a minimum acceptable level of a critical cladding panels may have met the design year design life for the “building structure”. property. There is also a definition of life obligation if they had been cleaned The contract incorporated a design durability as the capability of a building ‘frequently and intensively’. The court held development log, which further specified a or its parts to perform its required that such maintenance requirements range of design life requirements for various function over a specified period of would not have fallen within the ambit of parts of the works. time under the influence of the agents “anticipated maintenance” for design life anticipated in service.” purposes, as the court did not think such It was also material to the court’s decision maintenance would have been either (although not strictly to its analysis of what The court did not consider that this ‘standard’ or ‘non-onerous’. is meant by ‘design life’) that the conditions passage answered the question at hand, of contract incorporated a ‘fitness for but nonetheless approved the inter-relation Contractual design obligations purpose’ obligation which required the between the connected concepts of Going forward, parties to construction completed works to comply with any “design life”, “service life”, “performance” contracts with design obligations should requirement included or referred to in the and “durability”. note that ‘design life’ may equate to ‘lifetime contract. The court held that the design life to first major repair’, even though the obligation would be a ‘fitness for purpose’ The court went on to consider the did not go so far as to approve such a obligation, as was the case in the Supreme second standard: definition in this case. Court’s decision in MT Hojgaard v E.ON Climate & Renewables UK. “BS EN 1990:2002, entitled “basis of Arguably, the judgment outlines a means structural design”, contains at 1.5.2.8 by which one can determine whether In MT Hojgaard v E.ON the court had a reference to “design working life”, undefined design life obligations have been interpreted the particular wording of the which means the “assumed period complied with – that is, by asking whether design life obligation as a strict liability for which a structure or part of it is and when major repair has been necessary. obligation. It was therefore a strict warranty to be used for its intended purpose However, as so often say, each case that the design of the works would enable with anticipated maintenance but will depend on its own particular facts and contract terms. 12 www.charlesrussellspeechlys.com www.charlesrussellspeechlys.com 13 Construct.Law Winter 2020 Winter 2020 Construct.Law

TCC stays proceedings where smash and grab decision remained unpaid

The recent judgment in the case of Kew Holdings Ltd v Donald Insall Associates Ltd [2020] EWHC 1862 (TCC) again emphasised the Technology and Construction Court’s position that it will as much as possible give effect to adjudicators’ decisions and paying parties’ attempts to avoid payment will hold little truck with them.

Michael O’Connor, Partner, Construction, Engineering & Projects

The Facts and comply with the subsequent court Comment Kew engaged Donald Insall Associates to order. Since the Court of Appeal’s decision provide architectural services as part of a in Grove v S&T, it has been clear that project to convert and refurbish The King’s The Decision the paying party in a smash and grab Observatory in Richmond to form a private The court noted that: adjudication must pay the sum ordered residence. before it can commence a true value “The commencement of these adjudication over the disputed application In 2018, disputes arose between the parties proceedings [by Kew] without for payment. concerning Donald Insall’s entitlement to honouring the adjudication award and unpaid fees. Donald Insall commenced the judgment, in flagrant disregard of The TCC has now confirmed that this a smash and grab adjudication and was the “pay now, argue later” regime of the requirement cannot be circumvented by awarded just over £200,000. HGCRA, amounts to unreasonable and the commencement of legal proceedings. oppressive behaviour.” Kew failed to pay the sums due and Donald For any party involved in adjudication and Insall obtained judgment enforcing the However, the court was mindful of the the enforcement of adjudicators’ decisions, award in February 2019. draconian nature of ordering a strike out this judgment reinforces the view that of legal proceedings and therefore settled attempts to avoid compliance with orders of Kew again failed to pay the judgment sum upon a stay of the legal proceedings unless payment of smash and grab adjudications and Donald Insall obtained a final charging and until Kew had paid the sums ordered as will not be looked upon favourably by the order over The King’s Observatory and a result of the smash and grab adjudication. TCC and attempts to do so, will simply add sought an order for its sale. to the cost burden of those parties involved. The court dismissed the contractor’s In response, Kew commenced legal application to strike out the proceedings, proceedings seeking circa £2m in damages opting instead to stay the matter until Kew alleging, late and inadequate drawings, had paid the sums ordered by the court on inadequate advice and overcharging. 5 February 2019. A stay effectively means that court proceedings can’t proceed until a Donald Insall applied to have the certain act is done. proceedings struck out, claiming it was an abuse of process in light of the failure to pay the smash and grab adjudication decision

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In John Doyle Construction Ltd v Erith construction contract under which the did not provide a sufficient safeguard to • The streamlined procedure developed by An uphill battle? Adjudication Contractors Ltd [2020] EWHC 2451 (TCC), adjudicator has resolved the particular Erith. Similarly, the ATE insurance was also the TCC for enforcement of adjudication the Technology and Construction Court dispute. considered inadequate due to the terms of decisions is not suitable for summary enforcement by an (TCC) has recently given further guidance 3. Whether there are other defences the policy (such as restrictions which might judgment applications such as this on the circumstances in which enforcement available to the defendant that were not allow the insurer to avoid cover). For this case, where the proceedings relate to insolvent company may be possible. In short, it still appears deployed in the adjudication. reason alone, summary judgment historic claims brought by companies that enforcement will be an uphill battle for was refused. in liquidation. The exercise is likely to be liquidators. Principles (2) and (3) are similar. The more involved and require more time Following the recent Supreme Court decision in Bresco Electrical defendant may be entitled to set off Fraser J noted that: for investigation than is the case for Services Ltd (In Liquidation) v Michael J Lonsdale (Electrical) Ltd, it is clear claims that were not decided in the conventional adjudication enforcement Background adjudication. The usual principle that • As the security was offered through claims. Changes to the TCC Guide can that companies in liquidation have the right to adjudicate a dispute. This case concerned a final account counterclaims cannot be set off against Henderson Jones, if that security had therefore be expected. In the meantime, However, a successful adjudication is only half the battle: the insolvent adjudicators’ decisions does not apply to been deemed adequate it may then have claimants who are in a similar position company must still persuade the court to enforce the decision. dispute. The claimant, John Doyle Construction Ltd (JDC), was employed to insolvency set off. This is likely to present a been necessary to consider whether to JDC cannot expect their claims to be carry out landscaping work at the Olympic significant difficulty for liquidators in some JDC’s funding arrangements were routinely expedited in the same way as enforcement cases, particularly where potentially unenforceable as an abuse of conventional adjudication business in Park by Erith Contractors Limited (Erith). Damages Based Andrew Keeley, Partner, Construction, Engineering & Projects there are mutual dealings under other process, contrary to the the TCC. The works were completed prior to the Agreement 2013 2012 Games, under an amended NEC3 contracts (which the adjudicator would not and/or contract. JDC entered administration in have to consider). champertous. June 2012 and then creditors’ voluntary • Even if summary judgment had been liquidation in June 2013. However, the mere presence of cross- granted, the court would have granted claims, which might be of relatively a stay of enforcement. This is the “usual The dispute was not adjudicated until June insignificant value, will not necessarily defeat outcome” where the claimant is insolvent 2018, five years later. JDC’s liquidators had a claim for summary judgment. In the and there is insufficient security. been unable to agree the final account present case, this meant that a cross-claim with Erith. The liquidators then purported by Erith for £40,000 on another contract In any event, Erith would not be ordered to to assign the debt to Henderson Jones, a would not by itself prevent enforcement as, pay the sum found due by the adjudicator. company which specialises in purchasing even if this claim was entirely valid, it would claims from insolvent companies. Eventually still leave a significant balance due to JDC Going forward the liquidators and Henderson Jones under the adjudicator’s decision. A number of interesting points were made sought to enforce the adjudicator’s decision by the TCC in this case: using the expedited summary judgment 4. Whether the liquidator is prepared to procedure in the TCC. offer appropriate undertakings, such • It is in the public interest that liquidators as ring-fencing the enforcement should be able to pursue and enforce Principles to be applied by proceeds, and/or where there is other debts owed to companies in liquidation the court security available. in a cost-effective manner. A party to The judge (Fraser J) set out the following 5. Whether there is a real risk that the a construction contract should not be principles to be applied by the court when summary enforcement of an adjudication entitled to a windfall simply because the considering an application for summary decision will deprive the paying party of other party is in liquidation. judgment of an adjudicator’s decision in security for its cross-claim. • The Supreme Court in Bresco has made favour of a company in liquidation: it clear that a company in liquidation has Principles (4) and (5) are also similar. In Meadowside Buildings Development Ltd (in the right to adjudicate its disputes under 1. Whether the dispute in respect of which liquidation) v 12-18 Hill Street Management a construction contract. the adjudicator has issued a decision is Co Ltd [2019] EWHC 2651 (TCC) • An adjudicator’s decision may sometimes one in respect of the whole of the parties’ , the have utility for a liquidator without the financial dealings under the construction court considered three main ways in which need for enforcement; for example, contract in question, or simply one security might be provided by a liquidator: a decision about which party has element of it. undertakings by the liquidator, a third party repudiated a contract might influence the providing a guarantee or bond, and After liquidator’s approach to valuing claims. This principle is necessary because parties The Event (ATE) insurance. However, this is likely to be relatively rare. will often refer a small or tightly defined A disputed decision on repudiation may dispute for adjudication for tactical reasons. Here, there was a real risk that Erith would provide limited assistance in resolving the Adjudication decisions on narrow issues, be deprived of its right to have recourse to mutual balance due between the parties. such as ‘smash and grab’ disputes, will JDC’s claim as security for Erith’s cross- • Where enforcement is required, rarely be susceptible to enforcement on a claim. JDC relied upon a draft letter of credit companies in liquidation will face summary basis by companies in liquidation. from Henderson Jones’ bankers and an ATE “undoubted difficulties”. insurance policy. • Summary judgment may be possible if 2. Whether there are mutual dealings adequate undertakings (or some other between the parties that are outside the However, the court found that an intention suitable security) are available from the to apply for a letter of credit in the future liquidator. 16 www.charlesrussellspeechlys.com www.charlesrussellspeechlys.com 17 Construct.Law Winter 2020 Summer 2020 Construct.Law

First known case to order enforcement of an adjudicator’s decision in favour of a company in administration

Following the case of John Doyle v Erith Contractors in which the court refused to grant a stay of execution of an adjudicator’s award due to John Doyle’s administration, we now have what is possibly the first judgment post the Supreme Court’s judgment in Bresco where an adjudicator’s award was enforced in favour of a company in administration - Styles & Wood (in administration) v GE CIF Trustees.

Michael O’Connor, Partner, Construction, Engineering & Projects

This case was distinct from John Doyle, expert delay and quantum evidence) It is also clear that a party seeking to in that the administrators of Styles & and could be utilised and built upon for challenge enforcement in favour of Wood had not sold or assigned the claim the purposes of any . a company in administration on the to a third-party litigation funder and the • The £800,000 to £1 million costs grounds that the level of costs protection administrators had offered to ring-fence estimate was “broad brush”; there was being offered is insufficient, will need to the sums awarded by the adjudicator no analysis of the build up to these demonstrate its anticipated costs and be (approx. £700,000). figures; and it was unpersuasive in the able to explain clearly and accurately the context of what is now expected of basis on which those costs have been The main battleground was whether the costs’ breakdowns. calculated. It will not be enough simply to £200,000 contribution to an adverse costs argue that your expected costs will order under an ATE policy was sufficient in HHJ Parfitt concluded that the £800,000 be higher. the event the defendant was successful in to £1 million cost estimate was not overturning the adjudicator’s decision in realistic and that the £200,000 offered arbitration proceedings. under the ATE policy was a figure “within the ballpark” of what might be appropriate. The Defendants claimed that their costs HHJ Parfitt also noted that it was open of the arbitration would be somewhere to GECIF to return to court to seek apply between £800,000 and £1 million and on to the court for an incremental increase that basis the protection afforded by the to the security of costs required should ATE policy was insufficient. it transpire that greater security was required. In giving judgment, HHJ Parfitt analysed the facts of the particular case noting: Based on this judgment it is clear that following the Supreme Court’s decision • GECIF had already spent c£280,000 in Bresco, are willing to order the on the adjudication and whilst the enforcement of adjudicator’s decisions in evidential arbitral process would go favour of insolvent companies, but this is further, a lot of the work product already subject to the right pre-conditions incurred and paid for could be built upon being met. by GECIF in the arbitration. That work product was substantial (it included

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Stay’in alive – Court accepts Adjudication proceedings, granted a partial stay of execution in a sum Enabling to be done enforcement and application that would be fair to both parties. As has been emphasised in recent months for a stay during the COVID-19 pandemic, the manifest injustice in On 4 November 2019, JRT issued a HHJ Watson set out a number of the construction industry works on tight purported payment notice totalling “exceptional circumstances” in the case at margins and the risk of insolvency for granting stay £925k, to which TWD failed to respond. hand which justified a stay execution of the contractors is high. Accordingly, courts JRT commenced a “smash and grab” judgment sum until the of TWD’s claim: are reluctant to frustrate the underlying adjudication and the Adjudicator decided purpose of the Construction Act by An underlying tenet of the Construction Act is to encourage cash flow. in favour of JRT. JRT issued enforcement • HHJ Watson was satisfied that TWD preventing enforcement. Accordingly, courts are reluctant to grant a stay of enforcement on an proceedings in March 2020. TWD issued could not pay any of the judgment sum adjudicator’s decision unless certain limited circumstances are found proceedings seeking a declaration that the without rendering itself immediately Yet, as noted by HHJ Coulson (as he then insolvent and being forced into Hillview Industrial Developments to be present. 4 November payment notice should be was) in declared invalid. liquidation. Accordingly, if the claim was (UK) Ltd v Botes Building Ltd [2006], “I am not stayed, TWD would recover little, if also satisfied that the purpose of the 1996 Ben Wilkins, Associate, Construction, Engineering & Projects At the enforcement hearing, TWD any, of the judgment sum following trial. [Construction] Act is to provide a statutory Eveline Strecker, Knowledge Development Lawyer, Construction, Engineering & Projects conceded JRT was entitled to summary • TWD’s reliance on JRT (owned and framework which would enable justice to be judgment on the adjudication award. controlled by Mrs Dixon’s nephew) and done between parties to a dispute. It was However, it sought a stay of enforcement the method of funding through HCA not intended to cause injustice”. pursuant to CPR 83.7(4), pending resolution were unusual in a commercial contract. of the legal proceedings on the basis of the HHJ Watson noted that it was “clearly not As demonstrated in Gosvenor London following “special circumstances”: a project where the relationship between Ltd v Aygun Aluminium Ltd [2018] (which the parties was that of employer and extended the principles established in • the probable inability of JRT to repay contractor at arm’s length”. Wimbledon), the courts, while reluctant the judgement sum at the end of the • A key aspect was the manner in which to interfere with adjudicator’s decisions, cross-claim trial, relying on the case of JRT obtained the adjudication award. are also reluctant to see the adjudication Wimbledon Construction Company v Vago During the three-year course of the process being utilised to create injustice. [2005]; and contract, the JCT payment terms were Notwithstanding the significantly high • the risk of manifest injustice if no stay was ignored by both parties and it was only demanded for an enforcement to be stayed granted, as a result of TWD’s inability to after JRT terminated the contract in order to prevent manifest injustice, JRT pay and all the circumstances of the case. that it demanded money from TWD Developments highlights that courts are in excess of funding received from the prepared to exercise their discretion and Consideration of the law and HCA through the November 2019 order a stay when the circumstances granting a stay payment notice. TWD’s manager, Mr demand it. JRT Developments 2016, though it was later disputed whether In the recent case of Referring to guidance provided by HHJ Neville (another nephew of Mrs Dixon), Ltd v TW Dixon (Developments) Ltd [2020] the contract also incorporated the terms of Coulson, as he then was, in the case of who was blind and had no previous a separate document entitled “Commercial the TCC held that, on the basis of the “very Wimbledon, HHJ Watson noted that she experience of the construction industry, Agreement”, executed on the same date. unusual” facts of the case, there would be was satisfied that: did not appreciate the significance of the manifest injustice if the judgment were not The disputed of the contract, November 2019 payment notice, but had which would have a significant effect on its stayed to allow substantive disputes of fact • it was very highly probable that JRT would promised to investigate it. Despite this, value, later formed an aspect of the cross- to be heard in a subsequent trial. be unable to repay the judgment sum if JRT referred the matter to adjudication claim issued by TWD. ordered to do so after the trial of the Part as soon as it could do so. Although the The Project 7 proceedings; November 2019 payment notice may The relationship between the parties TW Developments Limited (TWD) was a • the financial position of JRT was well have been valid (to be determined deteriorated and in June 2019 the contract company formed by Mr and Mrs Dixon substantially different from when the JCT in the subsequent legal proceedings), was terminated by JRT. Although provided for the purpose of carrying out a contract was entered into and that this HHJ Watson considered these factual for in the contract, neither Architect development of 14 houses on a now posed a significantly higher risk than circumstances to be relevant when nor Contract Administrator were ever farmland plot in Shropshire. it did in 2016; and considering the fairness of enforcing the appointed. In fact dealings between the • JRT’s financial position was not caused judgment sum. parties were very informal. The parties JRT Developments Limited (JRT), owned either wholly or in significant part by • Finally, HHJ Watson also noted certain did not operate the payment procedure and controlled by Mrs Dixon’s nephew, Mr TWD’s failure to pay the sums awarded by sums had been included in the payment contained in the contract in the three years Woodcock, was the contractor tasked the adjudicator. application that were clearly not payable prior to termination. Instead, JRT liaised with building the houses and related to JRT and JRT had provided no directly with the HCA’s valuer and issued infrastructure. The development was his As to whether a manifest injustice would explanation for this. Whilst it would not be invoices to TWD for the amounts approved first major project and funding was provided be caused, HHJ Watson considered the appropriate to pre-judge the proceedings by the HCA which were then paid by the by the Homes and Communities decision in Galliford Try Building Ltd v Estura for the true valuation of any sums due, HCA’s funding. Agency (HCA). [2015] in which the court found that, in HHJ Watson considered it likely that, the unusual circumstances of that case, following trial, there would be an order for The parties entered into a JCT Minor Works it would be unjust to the defendant to a significant repayment to TWD. Contract with Design 2011 Edition in June be forced to pay the judgment in full, and

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Whether a contractor is entitled to be paid Essential law: Variations- for carrying out a variation where no written instruction is given is a perennial issue in part three construction projects. Everyone is working hard to complete a job on time, instructions Continuing our series on the basics of construction law, Katherine are given on site to change the works, Keenan considers some of the issues that can arise when a contractor these changes are implemented but the undertakes variations without a written instruction. paperwork never quite catches up. Then a dispute arises.

Katherine Keenan, Associate, Construction, Engineering & Projects What are the consequences of such oral instructions? It will depend on the wording of the contract and the actions taken by the parties, but there are a number of potential outcomes:

• There was a valid variation instructed under the contract entitling the contractor to additional time and money. • There was no valid variation instructed and so the contractor is in breach by changing the works it was required to complete under the contract. • There was no valid variation instructed such that the contractor is not entitled to additional time or money, but the employer has given the contractor • Stipulate that only written instructions an instruction, as it did not consider it the employer aware of the work being permission to change the works so it is are valid under the contract and that oral amounted to additional work, the court carried out? Has the employer given any not in breach by changing the works. instructions have no effect. has held that a promise was to be inferred indication that the formal requirements • There was no valid variation instructed from the employer to pay for it should it under the contract did not need to be but the contractor is still entitled to be found to be extra work. Acceptance followed? Further, is there any clause in additional money for the varied works on of work instructed orally by an architect the contract providing that a waiver of any another basis. Acceptance of work instructed is not on its own sufficient to show an right is only effective if given in writing? orally by an architect is not on its implied promise to pay. However, there The contract own sufficient to show an implied are cases where the employer has Often contractors are dealing with the There are a range of ways that a contract promise to pay requested additional works, has seen contract administrator or employer’s agent, can address how a variation has to be the expenditure on them and taken the who do not typically have authority to bind instructed. It may: benefit of that expenditure, and the the employer. If the contractor is seeking court has held that the employer has to to rely on one of the exceptions outlined • Not require the variation to be instructed Contracts that require account for the value of the extra work. above, it may have to demonstrate that it in writing. In such circumstances, the oral instructions to be in writing has been agreed by the employer. • A collateral contract – instruction should entitle the contractor If the contract stipulates that any variation A variation may be to additional time and money provided must be instructed in writing but the deemed to be undertaken pursuant to a the instruction is in fact a variation. variation is carried out on an oral instruction, separate contract, with a corresponding This article was first published in ‘Building’ • Provide that if a contractor confirms the contractor is unlikely to be entitled to entitlement to be paid a reasonable sum magazine on 5 March 2020 and is reproduced an oral instruction in writing, it will be payment unless it can establish: for that variation. This may be arguable with their kind permission. deemed effective unless the employer if the works fall outside the scope of the objects within a set time period. The • Implied promise to pay – Where the variations clause under the contract, contractor is potentially at risk if it employer orders work that it knows are carried out after completion of the proceeds before either the employer has will cause extra cost, there may be an original contract work, or are considered confirmed the position in writing or the implied promise by the employer that to be “so peculiar and so different” that set period has expired. the work should be paid for as an extra they are deemed to be outside the • Allow oral instructions to be even if not instructed in accordance with contract. retrospectively confirmed in writing the requirements of the contract. This • Waiver – after the change has been carried out. is particularly the case where any other By the employer of the If the employer refuses to exercise inference from the facts would be to requirement to instruct variations in its discretion under such a clause, an attribute dishonesty to the employer. writing. The party wishing to rely on adjudicator, arbitrator or court may have When the employer insisted that the waiver will need to demonstrate the power to exercise that discretion. certain work be undertaken without the waiver and reliance upon it. Was

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As a general rule, the starting point is that Can the employer redistribute the What happens if an employer omits How will omitting works affect the Essential law: Variations - there is no common law right in building works, taking the work from one works when it is not entitled to completion date? contracts to omit works from the agreed contractor and giving it to another, do so? This will depend on the terms of the relevant part four scope. The courts have held that a or even to itself? If an employer omits work where it is not contract. For example, under the JCT Design contractor has both an obligation to do the The courts have found that the employer entitled to do so, the courts have held that and Build Contract 2016, an omission can Continuing our series on the basics of construction law, James works instructed under a building contract, should not be able to relieve itself from having can be a repudiatory breach of the building allow the completion date to be brought Worthington and Vanessa Jones address the scope to omit works and a corresponding right to be able to do struck a bad bargain through the omissions contract (because it shows an intention forward, but the completion date can never under a building contract those works. clause, by taking work from one contractor by the employer not to be bound by the be brought forward earlier than the original and passing it to another. Building contracts contract). A repudiatory breach gives rise to a completion date. This principle protects the contractor from will therefore generally contain an implied common law right for the contractor to either James Worthington, Partner, Construction, Engineering & Projects a situation where it has, for example, turned term (or, in some cases, such as certain FIDIC elect to affirm the breach, or to terminate the Vanessa Jones, Associate, Real This article was first published in ‘Building’ away work or procured specialist equipment contracts, an express term) that instructions contract. In either case, the contractor would magazine on 3 June 2020 and is reproduced on the basis that it will be carrying out the to omit works for the purpose of awarding be entitled to claim damages incurred as a with their kind permission. work agreed under the building contract those works to another contractor are result of the breach, including damages for in the amounts specified in the contract. prohibited. If the employer intends to do the profit it would have made on the omitted If an employer had free rein to omit those this, there needs to be clear wording in the work. If the contractor elects to terminate, works, the contractor could be exposed to contract allowing it. the contractor could also claim for the loss of significant losses. profit on the remainder of the

In what circumstances can the The same principle applies where the uncompleted works. employer omit works? employer would otherwise carry out the omitted work itself. An omission instruction What is the valuation of the omitted For the employer to omit works, there must be for the genuine purpose of omitting works? must be an express provision in the those works from the overall works (that is, Where a valid instruction to omit is issued, it contract which allows for such omission. where it is no longer required for the contract). is likely that the contract sum will be varied For example, the JCT Design and Build The employer cannot simply omit the works to reflect that omission. The basis of the Contract 2016 includes in the definition of a and carry them out itself, without an express variation to the contract sum will depend “change”, at clause 5.1.1.1, the right to issue provision to the contrary. on the terms of the valuation regime for an instruction for the “addition, omission or variations in the relevant contract. However, substitution of any work”. Looking at the JCT Design and Build such valuation will usually be based on either Contract 2016, redistribution of the works is the price of the omitted work under the However, even these express provisions will not expressly permitted and therefore any contract or the cost to the contractor that be subject to limitations on the extent of instruction of that nature could lead to the would have been attributable to the the work that can be omitted, and whether employer being in repudiatory breach. omitted work. that work can be redistributed to other contractors (or carried out by the employer itself). What can or cannot be omitted? As an omission is, by its nature, a variation, it will necessarily be subject to the restrictions on variations discussed in our first article in this series (page 22).

In particular, the employer cannot issue an omission instruction that changes the fundamental characteristic of the works or the basic bargain between the parties. An instruction to omit will need to be considered with this in mind – the works must still be capable of being identified as the “works” following the omission. The courts will not allow the right to omit works to be used as, in effect, a right to terminate for convenience.

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Contributors About the construction, engineering & projects group We are a large team of over 40 specialist lawyers, based in 11 locations across the UK, Europe, the Middle East and Asia, enabling clients to access the full range of the firm’s skills and expertise, both in the UK and internationally. The team includes dual qualified and , , and accredited mediators and adjudicators. Christopher Busaileh Christopher Hadnutt Anna Sowerby Senior Associate Associate Trainee Solicitor Hugh Gunson Construction, Engineering & Projects Construction, Engineering & Projects Construction, Engineering & Projects LegalOur Construction, Director Engineering & Our experience is CorporateProjects group Tax provides the full range of extensive, including advising on: T: +44 (0)20 7427 4546 +44 (0)20 7427 6571 T: +44 (0) 20 7203 5226 dispute and transactional services for [email protected] [email protected] [email protected] T:large +44 scale (0)20 construction 7438 2252 and engineering • court proceedings [email protected], in the UK and internationally. • adjudication • arbitration (domestic and We act for a wide range of clients, but international) with a particular emphasis on: • expert determination • and dispute avoidance • major contractors • major engineering consultancies We focus our dispute resolution • developers strategy on maximising the net recovery • housebuilders for our clients when bringing claims, Eveline Strecker Andrew Keeley Michael O’Connor Sara Cunningham • property investment companies and minimising or extinguishing their Knowledge Development Lawyer Partner Partner Associate exposure when defending them. Construction, Engineering & Projects Construction, Engineering & Projects Construction, Engineering & Projects OurConstruction core transactional legal experience include advising on all forms of Our full-service approach ensures T: +44 (0)20 7438 2272 T: +44 (0)1483 252581 T: +44 (0)20 7427 6441 constructionT: +44 (0)20 7427 and engineering6612 contracts that an appropriate strategy can be [email protected] [email protected] [email protected] [email protected] associated documentation, adopted to achieve our client’s priorities insurance arrangements, and all related throughout the lifetime of a project. Our financial security (such as bonds, aim is to provide a personable and highly guarantees and warranties). responsive specialist service.

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