At Myerson, our Construction Team advise on all aspects of construction disputes. This article is the first in a series of articles whose focus is on a selection of issues that we have seen contractors and sub-contractors face on live projects in recent months.
All construction contracts include mechanisms for variations (sometimes referred to as a change) to the works. Effectively, this is an alteration to the scope of work originally specified in the contract or a change to the way the works are to be carried out. Such variations are extremely common and occur throughout the lifecycle of a building project. A failure to include provisions that allow this in a building contract will inevitably lead to difficulties administering the project.
By way of illustration, unexpected items uncovered during the works (such as unforeseen ground conditions) may require changes to the originally planned works, whether by way of an addition, omission, or substitution to the works or through a change to the way the works are to be carried out. In the scenario of unforeseen ground conditions, for instance, the foundations may need to be changed. This may also lead to delay in the carrying out of the works and increases in material and labour costs. Thankfully, all of this is dealt with (albeit differently) by all standard form building contracts (including, JCT, FIDIC and NEC).
As referred to above, a type of variation is an omission of works i.e. an instruction not to carry out some of them. Whether an employer can instruct an omission from the original contract works will depend on the wording of the contract and it must be expressly set out in the contract. A right to omit work will not be implied if it is not included in which case it could amount to a breach of contract by the Employer.
Typically, standard form building contracts are amended to fully capture the intentions of the parties with a schedule of amendments. It is important, therefore, to ensure the drafting works properly and that those factual eventualities which are likely to occur on the project (i.e., the need to omit part of the works) are dealt with by the contract terms.
In the case of Amec Building Company v Cadmus (1996) the Court considered the validity of a variation instruction where the purpose was to omit provisional sum work to give it to another contractor. The contractor challenged this and the Court held that the employer did not have the right to do this under the contract and, consequently, the contractor was entitled to compensation, which included the profit that the contractor would have been paid on the omitted work.
For an employer, therefore, to be able to omit works to award them to a different contractor, a general right to omit works is not enough. The building contract must contain an express contractual provision allowing the employer to omit works and give them to another contractor (or, alternatively, the contractor agrees to such an omission). Reliance on the normal variation mechanism in a building contract which has not been amended to allow for this is insufficient. Clear and unequivocal wording must be included in the contract if the employer wishes to be entitled to omit works in this way.
A further question often raised is where contract works are omitted is the employer entitled to unilaterally reduce the build programme to force the contractor to complete the works in less time than originally provided for?
Generally speaking, the answer is no in regard to the original completion date. Taking the JCT Design and Build contract as an example, the Employer’s Agent (EA) only has a right to bring the completion date forward through the acceleration process in the contract, except where he/she has already issued an extension of time (EOT) to the completion date. If an EOT has been issued then the EA can issue an instruction to omit works and in doing so can reduce the EOT to take account of the omitted works. This would typically be in order to try to mitigate the effect of any delay. However, the EA can only reduce an EOT to reflect the omission, it cannot make the completion date earlier than the original completion date stated in the contract.
In this sense, therefore, completing the works by the completion date is not only a burden on the contractor but it is also of some benefit as it cannot be required to complete the works prior to that date.
The general premise of this goes back to an old case Wells v Army and Navy Co-operative Soc (1902) where Vaughan Williams LJ stated: “to my mind that limitation of time is clearly intended, not only as an obligation but as a benefit to the builder …”. Effectively, this states that the imposition of a contract date for completion means that the contractor has a positive right to have the stipulated period in which to complete. This is also the principle whereby it is up to the contractor as to how he organises himself and proceeds with the works as long as he finishes by the completion date. This then leads on to another issue that we frequently see relating to obligations to comply with a programme which is beyond the scope of this article but might be the subject of a future one.
Construction contracts are often long complicated agreements; particularly, main building contracts and sub-contracts. This is exacerbated by the propensity to use a standard form contract (JCT or NEC etc) subject to a schedule of amendments. Entering into a construction contract should not be undertaken lightly and the risks associated with such contracts are often substantial.
Myerson’s construction team are on hand to review construction contracts before they are entered into by the parties, to avoid some of the issues touched on above. We are also available to advise on the merits of a contractor to developer / sub-contractor to contractor claim arising from a breach of contract pertaining to works variations (including, omitted works) and the fallout this can have on claims for delay, prolongation and loss & expense, as well as a plethora of other causes of action which may arise during the performance of a construction project.