RICS Legal Issues in Construction - JCT contracts Legal... · RICS Legal Issues in Construction - JCT Contracts 2 to mankind. Our architects and engineers are ahead of us and amongst

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RICS Legal Issues in Construction - JCT contracts

by Simon Tolson

In this paper I shall address:

• Alawyer’sviewontheapplicableEnglishlawonsustainabledevelopment

• Anupdateonpaymentlawandconstructioncontractsjuxtaposedtothechangesin2009

• SummaryoftheJCT2009Revisionstopaymentetc

• CommonlegalmythswithJCTon“snagging”

• Sectionalisationcompletionandtimeatlarge

• Disputesand2009andpinchpointsforJCTcontractsinarecession

A lawyer’s view on the applicable English law as it sits around that leviathan, sustainability/sustainable development

Sustainabledevelopmenthasadiversityofmeaningstodifferentfolkdepending1. ontheparticipantyouspeaktoforaview.Sustainabledevelopmentdoesnotjustmeandiminishingthecarbonfootprintofaperson,companyornation.Sustainabledevelopment has become a concern everywhere for the construction industry.HittingmyGooglesearchbuttonproducednolessthan24,900,000internationalhits and 1,840,000 domestic ones! Such is themass ofmaterial written on thesubject,fromsomanyinterestgroupsandviewpoints,itishardtoknowwheretostart.

Indeed, if you had invited a lawyer just a few years ago to tell you what he2.understood about sustainable development, and whether he would know asustainableargumentfromanunsustainableone,therewouldbeascratchedchinandaruffledbrowortwo.Todayparticularlyinmyfieldastrawpollwouldelicitrathermore thanks to the journalistic profession, regulators and the fashionistadesignerswhoarerunningwiththesustainableball. TheUKClimateProjections2009, based onMet Office science, illustrate the extent of the changes the UKmightface(unlessthisisallaboutsunspots1)intheabsenceofglobalactiontocutemissions–warmerandwetterwinters,hotteranddriersummers, increasedriskofcoastalerosionandmoresevereweather.Themapsandfindingsarepubliclyavailableonline.Thedoomsayerscientistsallsaywearestandingonaprecipice.OnethingIamquitesureofisthatsustainableprovisionswillbecomemoreandmoreprescriptivewithtime,somarkmywords.

WearefortunatethattheUKhasworld-classclimatechangeresearchinstitutions3. andconsultancyservicesincarbonmeasurementandmanagement,butitisthe‘doing’thatcounts!

ThetypeofsustainabilityIamreferringtoisaboutmakingsureallofourbusinesses4.andgovernmentalbodies,publicservices,nationalresources,andeconomyhavethemeans tocontinue in theyearsaheadatamicroandmacro level.Thebuiltenvironment issaidtoaccountforaround47%ofCO2emissions intheUK,witha significant proportion of this relating purely to the running and operating ofexistingbuildingsandtheirfacilities.Itisahighlyemotivesubjectaswearebeingforcedtowakeuptothefactthattherearelimitstothenaturalresourcesavailable

1. Sunspotsaredark,coolerpatchesontheSun’ssurfacethatcomeandgoinroughlyan11-yearcycle,firstnoticedin1843.Theyhavegoneawaybeforeastheyhavenow!Theywereabsentinthe17thcentury–aperiodcalledthe“MaunderMinimum”afterthescientistwhospottedit.Crucially,ithasbeenobservedthattheperiodswhentheSun’sactivityishighorlowarerelatedtowarmandcoolclimaticperiods.TheweakSuninthe17thcenturycoincidedwiththeso-calledLittleIceAge.TheSuntookadipbetween1790and1830andtheearthalsocooledalittle.ItwasweakduringthecoldIronAge,andactiveduringthewarmBronzeAge.Recentresearchsuggeststhatinthepast12,000yearstherehavebeen27grandminimaand19grandmaxima.Throughoutthe20thcenturytheSunwasunusuallyactive,peakinginthe1950sandthelate1980s.DeanPensellofNASA,saysthat,“sincetheSpaceAgebeganinthe1950s,solaractivityhasbeengener-allyhigh.Fiveofthetenmostintensesolarcyclesonrecordhaveoccurredinthelast50years.”TheSunbecameincreasinglyactiveatthesametimethattheEarthwarmed.Butaccordingtothescientificconsensus,theSunhashadonlyaminorrecenteffectonclimatechange.

RICS Legal Issues in Construction - JCT Contracts

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tomankind.Ourarchitectsandengineersareaheadofusandamongstthefinestatcreatingdesignsforthelow-carboncitiesofthefuturelikeMasdarCity2inAbuDhabi;othersarehappeninginChina3 and10Londonboroughs.

Onlyinthelastfewdayswehaveall,Iamsure,seenthereportsonthefloodingin5.Istanbul,Turkeywhichshowhowman’spoorinfrastructurecombinestocreatefarworseclimatechangeissues.

“The presence of deadly floods right in the heart of Istanbul first of all points at the insufficient infrastructure of the city,” said Dr Filiz Demirayak, the CEO of WWF-Turkey. “Unregulated urban development and infrastructure have become barriers preventing rain water to reach the sea via its natural path.”

Climatechangeisoneofthebiggestchallengesfacingtheworld.Fewnowdoubt6. thathumanbeingsareresponsibleformostoftherecentplanetarywarming.Weare emitting greenhouse gases (most significantly carbon dioxide butmethaneisnot farbehind) into theatmospheremuch faster thanplants andoceanscanabsorbit.OnestarkrealityisthatcurrentconsumptionpatternsoftheUKcouldnotbereplicatedworldwideasthiswouldrequirethreeplanetsworthofresources;wemustmovetoone-planetliving.ButIamrealistic-bestpracticedevelopershaveincludedsustainabilityprovisionsintheircontractsforyearsandtheyseldommakethefinalcut.Theseprovisionsmaywell fareaswellas the JCT thirdparty rightsoptionanddatainterchangesupplement.Anydeveloperoroccupiercanalreadyincludesustainabilityinthespecification,butunlessthereissomesanctionintheformofamendedbuildingregulationsorarealcostincentiveintermsofwholelifecyclecostingsforbuildings,theseprovisions,ifintroduced,arelikelytoremainanaspirationandofdubiousenforceabilityinanycase.However,agreatdealofthisisaboutchangingthewaywethinkandabouteducatingwhat“valueformoney”isinitswidercontext.

This is a reflection ofman’s proficiency in investing in economic resources, yet7.our society has been less triumphant in looking after the human, social andenvironmental resources that we rely on. One of the solutions is “sustainabledevelopment”andbodieslikeJCTLimitedaredoingtheirbittoencouragethis.AsPeterHibberdoftheJCTputit,“Weoweittofuturegenerationstoensurethatthebuildingsweputuptodayprotecttheenvironmentasfaraspossible-andatthesametimearegreatplacesinwhichtolive,workandhavefun.”

SustainabledevelopmentwasfamouslydefinedintheBrundtlandReportas:8.

“the needs of the present without compromising the ability of future generations to meet their need”. 4

Withoutwantingtosoundlikealaypreacheritisaboutcaring,notjustaboutthe9.hereandnow,butaboutthe long-termwell-being-thefuture-sowemaynotharm the planet irreparably by doingwhatwe do now. Itmeans not using upresources inourconstructionprojects fasterthantheplanetcanreplenishorre-stockthemand joiningupeconomic,socialandenvironmentalgoals.Nodoubtthecurrentcreditcrunchdoesnotaidthisprocessasbusinessesstruggletofindmeanstoearnrevenuewithoutotherdistractions.

The2008ClimateChangeActmadeBritain thefirst country in theworld to set10.legallybinding“carbonbudgets”,aimingtocutUKemissionsby34%by2020andat least80%by2050 through investment inenergyefficiencyandcleanenergytechnologiessuchasrenewables,nuclearandcarboncaptureandstorage.

WhileGovernmenthasanimportantroletoplayinstimulatingcompaniestoact11. throughincentives,rewardsandthethreatofpenalties,itisultimatelybusinessesthatwilldeliverasupplyofgoodsandservicesthatarelessdamagingandmoreresourceefficient.The$64mquestioniswhetherthisisbestachievedthroughhardlaw,softlaw5orpolicy.

2. InSeptember2009MasdarInstituteofScienceandTechnologywelcomeditsfirstintakeof92graduatestudents,representing22differentnations.Thestudentsarepartofatwo-yearMaster’sprogrammeattheworld’sfirstacademicinstitutiondedicatedtotheresearchofalternativeenergy,environmentaltechnologiesandsustainability.

3. ThenumberofcitiesinChinahasin-creasedfrom193in1978to661in2005,amongwhich54areso-calledmega-citiesand84arelargecities,comparedwith,respectively,13and27in1978.Bytheendof2006,theurbanisationrateinChinawasabout43.6%ofthepopula-tion.Thisrateisrapidlyincreasing,with75%ofthepopulationestimatedtoliveincitiesby2050.

4. WorldCommissiononEnvironmentandDevelopment(WCED),1987,p.43.NorwegianPrimeMinisterGroHarlemBrundtland’sdefinitionandtheconceptsexpressedinthereportOurCommonFutureidentifythedependencyofhumansontheenvironmenttomeetneedsandwell-beinginamuchwidersensethanmerelyexploitingresources:“ecologyandeconomyarebecomingevermoreinterwoven–locally,region-ally,nationallyandglobally”.

5. Softlawisatermusedtodescribeaquasi-legalfunction.Softlawcanbefoundindocuments,statements,guidelines,codesofconduct,principles,actionplans,declarations,resolutions,andcodesofethicstraditionallyfoundintheinternationalarena,althoughitissurfacingindomesticinstancesaswell.Theterminologyevolvedbecauseoftheparticularfunctionitserved.Essentiallyprovidingaframeworkofguidelinesandexpectations,softlawlacksthe“teeth”thatreallaw,or“hardlaw”,canhave.Softlawhasthepotentialofbecoming“hardlaw”andmorphingintoatreaty,contract,orruleoflaw.



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Only lastweek (17September2009) theGovernmentannouncedthroughPeter12.Mandelson, at a meeting of the Strategic Forum for Construction, that he wascommissioning a review of the construction industry to ensure it was “fit forpurpose”fordeliveringalowcarbonfuture.ThereviewwillassessthestrengthsofandopportunitiesfortheUKconstructionindustryinalowcarboneconomyandconsiderhowtheUKcanbeaworldleaderinthissector.ThisreviewwillbeledbytheChiefConstructionAdviser(tobeappointed)andwillbeundertakenbyamixof industryexpertsandthosewithwiderbusinessexperience.Weshallseewhathappens.

Thebottomlineis learningtolivewithintheearth’snaturalenvironmental limits13. withoutmateriallydisturbingourwealthorhappiness.However,thereareinfactthree bottom lines.

This idea of the “triple bottom line”14. 6 proposes that an organisation’s licence tooperateinsocietycomesnotjustfromsatisfyingstakeholdersthroughimprovedprofits (the economic bottom line), but from improving its environmental andsocial performance also. As such, it encompasses environmental responsibility,social awarenessandeconomicprofitability. Thereare twoacceptedschoolsofthoughtbasedonthetriplebottomline,theThreePillarsmodelandtheRussianDollmodel.

The Three Pillars model sees sustainability as the merging of the economic15.enterprise,socialwell-beingandenvironmentalintegrity.IntheRussianDollmodel,economicactivityisattheepicentreasthebasisofwealthcreation,whichdrivesthedevelopmentenginebutatthesametimeisconstrainedbyenvironmentalandsocialconditions.Thus:

RussianDoll

ThreePillars

TheimpressionIhavepaintedmaycreatetheimageofabunchofopen-toedtree-16. huggers,butthisisfor“normal”people.Businessesarebecominggloballyawarethatsustainabilityissueshavetobeconsideredwithinthecontextofdoingbusinessaroundsocialandeconomichubs,inthesamewayasfactorssuchascompetitionrulesandprocurementpolicy.Onecanseeandreadintheindustryjournalsand

6. Firstcoinedin1994byJohnElkington,theEnglishsociologist,whoforthepast30yearshasconcernedhimselfwithis-suesoftheenvironment,morerecently,sustainability.



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qualitypressthattheagendaforchangehasarrivedandour lawsandcontractsarebeginningtoreflect this. Even if there isamismatch intimingbetweentheelectoralandenvironmentalimpactofchangeweallknowthatnoonenationonitstodcanresolvetheproblemsofglobalwarmingandCO2emissions.Emissionshavenodefinableboundaries,Chernobylprovedthatone.Shortof internationalactioncommonlyagreedandfollowedthrough,itishardevenforalargenationtomakeadifferenceonitsown.

Intheconstructionandalliedprofessionsgivenourglobaldominance(yesevenin17.thiscrunch),weareuniquelyequippedtocontributetoimprovingourcredentialsasplayers inmoresustainabledevelopment7asa realsellingpoint. WhileChinaandIndiamaymakeusfeelourendeavoursmakelittleornochangetothemacropicture,eventherethingsarechanging.8Thecynicscannotarguethatsustainabilityisanythingbutvirtuous.Thenextfewdecadespromisetobeamongstthemostchallengingeverforthecivilengineeringcommunity.Changeisbeingimposedon world orders with the increasing populations of the Middle East and Asia,progressive urbanisation, andongoing economic development, not tomentionclimatechangeandthepersistentriskofextremeeventsalreadypresent.ItwillnomorebeIcandoit,butIcandoitwithoutcausingmorethanminimalimpactontheplanet;thecredentialshavechanged.Internationallawwillcatchupwiththepolicysoonenough.

ItwasEdmundeBurke18. 9whosaid“Noonecouldmakeagreatermistakethanhewhodidnothingbecausehecoulddoonlyalittle.”

Allthereliableevidenceshowstheearthisatacriticalcrossroads.Whilerevolutionary19.advancesinscienceandtechnologyhaveliftedhumanityanditsconditiontonewheightsofprosperityandlongevityinmanypartsoftheworld,hundredsofmillionsofpeoplearevulnerabletotheimpactsofhazardsandnaturaldisastersandahostofotherchallenges. At thesametime,humanactivity,especially in the last100years,isthreateningthehealthoftheenvironmentandpotentiallyposingrisksofunprecedentedmagnitudetooursharedfuture.

With the ever-increasing need to become more environmentally friendly,20.governments are urging companies to incorporate sustainability at the designprocess.ThreeyearsagotheUnitedKingdomGovernmentlauncheditsCodeforSustainableHomes,10andismoving(slowly)towardsall“zero-carbonhomes”11 by 2016andallnewnon-domesticbuildingsaretobezerocarbonby2019.Yes,pigsmightfly,butthatisthetarget.On27February2008theGovernmentconfirmeditsmandatoryratingagainsttheCodefornewhomesfrom1May2008.Thelatestguidecameintoeffecton3November2008.

On these shores the UK Government, the Scottish Executive, Welsh Assembly21.Government,andtheNorthernIrelandAdministrationhavealsoagreeduponasetofprinciplesthatprovideabasisforsustainabledevelopmentpolicyintheUK.Forapolicytobesustainable,itmustrespectallfiveprinciples:

Livingwithinenvironmentallimits(i)

Ensuringastrongjustsociety(ii)

Achievingasustainableeconomy(iii)

Usingsoundscienceresponsibly(iv)

Promotinggoodgovernance(v)

Intermsoffocusingitsefforts,theUKhasidentifiedfourpriorityareasforimmediate22.action,sharedacrosstheUK.Theseare:

7. TheMiddleEastCentreforSustain-ableDevelopment(MECSD)isblazingatrailtomeetthedemandforGreenCertifiedSustainableDevelopment,inDubaiandacrosstheregion.TheUAEhasturnedthecornernowthatAbuDhabiisbuildingthefirstzero-carbon,zero-wastecityintheworld.TheMasdardevelopmentinAbuDhabiisa6kmsq,car-free“walled-city”scheme.ThedevelopmentisbeingdrivenbyAbuDhabi’sFutureEnergyCompanyandwillincludeanewHQforthecompanyaswellasanewuniversity.

8. InChinanow,theyarehungrytolearnhowtheirindustriescanbemademoresustainable;theChineseweresensitivewhilealleyeswereonBeijinginAugustlastyearfortheOlympicsandsawthesmog,rateofeconomicgrowth,urbanisationandindustrialdevelop-ment,andtheunprecedentedforcesonthecountry’sinfrastructure,society,andenvironment.

9. Politicianandphilosopher,1729-1797.

10. On13December2006,theCodeforSustainableHomes-anationalstandardforsustainabledesignandconstructionofnewhomes-waslaunched.

11. TheGovernmentisconsulting,until18March2009(followingcriticismfromJohnCallcutt,formerheadofEnglishPartnerships,inhis“ReviewofHousebuildingDelivery”),onthedefini-tionofzero-carbonhomes,toapplytoallnewhousesbuiltfrom2016.Italsoseeksviewsonitsambitionthatnewnon-domesticbuildingsshouldbezerocarbonfrom2019.Thereistobemoredetailedconsultationonthatnextyear.



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SustainableConsumptionandProductio(i) n – theGovernment says that tolivewithinourresources,weneedtoachievemorewithless.Thisrequiresustochangethewaywedesign,produce,use,anddisposeoftheproductsandservicesweownandconsume.

ClimateChangeandEnerg(ii) y– theGovernment saysweneed to secureaprofoundchange in thewaywegenerateanduseenergy (wenowhavemorewindturbinesthananyothercountryinEurope),andinotheractivitiesthatreleasegreenhousegases,toreducegreenhousegasemissionsintheUKandworldwide,whilstatthesametimepreparingfortheclimatechangethatcannotbeavoided.

Natural Resource Protection and Environmental Enhancemen(iii) t – the Governmentsaysthatunderstandingthelimitsofthenaturalresourcesthatsustainlifeandoureconomyisessential,askeyindustrialsectorsaredirectlyandindirectlyreliantonfunctioningecosystems.

SustainableCommunitie(iv) s–theGovernmentsaysitsaimistolookaftertheplaces inwhich people live andwork, for example by developing green,openspacesandbuildingenergy-efficienthomes.

However, enough of politics and social policy; let us look at the current legal23.frameworkanditsimpactonconstruction.

Contract,legislationandsustainabledevelopment

To support the Government’s sustainable development policy (which the next24.administrationislikelytofollow)therehavebeenanumberofEUDirectivesandstatutespassedovertheyearsbutallhavetendedtohavemoreobliquepathstosustainabledevelopmentsincetheytendtohavebroadlyenvironmentalroots.Thetruthistherehasbeenamassofguidanceandpoliciespermeatingtheindustry,butlittleinthewayofprimarylegislationuntilnow.

Yes,wehavetheClimateChangeAct2008,whichbecamelawon26November25.2008,anditischangingthecanvas.Makenomistake,theActprovidesaframeworkforfurtherregulatoryactiontoberolledoutandestablishesoverarchingemissiontargets for the Government to meet. The Act leads the way in bringing inrequirements onbusiness tomeet increasingly challenging targets for reducingcarbonemissions.TheUKhasbecomethefirstcountryintheworldtointroducelegallybindingtargetstoreducegreenhousegasemissions.TheUKLowCarbonTransitionPlanplotshowtheUKwillmeetthe34%cutinemissionson1990levelsby2020,setout inthe lastbudget.AccordingtotheDepartmentofEnergyandClimateChangewehavealreadyreducedemissionsby21%–equivalenttocuttingemissionsentirelyfromfourcitiesthesizeofLondon.The“10:10”schemeisalsoanambitiousprojecttouniteeverysectorofBritishsocietybehindonesimpleidea:thatbyworkingtogetherwecanachievea10%cutintheUK’scarbonemissionsin2010.12

The Rt. Hon. Edward Miliband, the energy and climate change secretary, said26.therearehugecommercialandeconomicopportunitiesinthenewtechnologiesassociatedwith combating climate change.“Theworld has the potential for anenvironmentaltechnologyrevolution-thekindofrevolutionrecentlyseenintheastonishinggrowthofinformationtechnology.”

ThecentralpointsoftheClimateChangeActare:27.

Legallybindingtargets:Greenhousegasemissionreductionsthroughactionin•theUKandabroadofatleast80%by2050,andreductionsinCO2emissionsofatleast26%by2020,againsta1990baseline.The2020targetwillbereviewedsoonafterRoyalAssenttoreflectthemovetoallgreenhousegasesandthe12. See:www.1010uk.org/



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increaseinthe2050targetto80%.Youcanbetyourboogaloosthatlegislationwillfollowinourindustrytomakethishappen.

Acarbonbudgetingsystemwhichcapsemissionsoverfive-yearperiods,with•threebudgetssetatatime,tosetoutourtrajectoryto2050.Thefirstthreecarbonbudgetswill runfor2008-12,2013-17and2018-22,andmustbesetby1 June2009.TheGovernmentmust report toParliament itspoliciesandproposalstomeetthebudgetsassoonaspracticalafterthat.

ThecreationoftheCommitteeonClimateChange,anewindependent,expert•bodytoadviseGovernmentonthelevelofcarbonbudgetsandwherecost-effectivesavingscouldbemade.TheCommitteewillsubmitannual reportstoParliamentontheUK’sprogresstowardstargetsandbudgetstowhichtheGovernmentmustrespond,therebyensuringtransparencyandaccountabilityonanannualbasis.

Internationalaviationandshippingemissions-theGovernmentwill include•internationalaviationandshippingemissions in theActorexplainwhynotto Parliament by 31 December 2012. The Committee on Climate Changeis required to advise the Government on the consequences of includingemissions from international aviation and shipping in the Bill’s targets andbudgets.Projectedemissions from internationalaviationandshippingmustbetakenintoaccountinmakingdecisionsoncarbonbudgets.

Useof internationalcredits -Government is required to“have regard to the•need forUKdomestic actiononclimatechange”whenconsideringhow tomeettheUK’stargetsandcarbonbudgets.

TheindependentCommitteeonClimateChangehasadutytoadviseonthe•appropriatebalancebetweenactionatdomestic,Europeanandinternationallevel,foreachcarbonbudget.

TheGovernmentalsoamendedtheBillinitsfinalstagestorequirealimitto•be seton thepurchaseof credits for eachbudgetaryperiod,by secondarylegislation requiring debate in both Houses of Parliament, and taking intoaccounttheCommittee’sadvice.

Furthermeasurestoreduceemissionsincludepowerstointroducedomestic•emissions trading schemes more quickly and easily through secondarylegislation;measuresonbiofuels;powerstointroducepilotfinancialincentiveschemesinEnglandforhouseholdwaste;powerstorequireaminimumchargeforsingle-usecarrierbags(excludingScotland).

OnadaptationtheGovernmentmustreportatleasteveryfiveyearsontherisks•totheUKofclimatechange,andpublishaprogrammesettingouthowtheseimpactswill be addressed.TheAct also introducespowers forGovernmenttorequirepublicbodiesandstatutoryundertakerstocarryouttheirownriskassessmentandmakeplanstoaddressthoserisks.

AnAdaptationSub-CommitteeoftheCommitteeonClimateChange,inorder•toprovideadvicetoandscrutinyoftheGovernment’sadaptationwork.

A requirement for theGovernment to issueguidancenextyearon theway•companiesshouldreporttheirgreenhousegasemissions,andtoreviewthecontribution reportingcouldmake toemissions reductionsby1December2010.

Requirement also that the Governmentmust, by 6 April 2012, use powers•undertheCompaniesActtomandatereporting,orexplaintoParliamentwhyit has not done so.



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New powers to support the creation of a Community Energy Savings•Programme, as announced by the Prime Minister on 11 September 2008(by extending the existing Carbon Emissions Reduction Target scheme toelectricitygenerators).

New requirement for annual publication of a report on the efficiency and•sustainabilityoftheGovernmentestate.

Whatweareseeingisevidencethatenablinglegislationandguidancewillbefore28.longturnintohardprescriptivelegislationas,iftruthbetold,sustainabilityuntilnowhasonlyhadlipservicepaidtoitinmanyprojects.Contractsareusuallysilentonwhatitmeanswithanyspecificity,andwhatistoapplyoroccurifitisnotmet.Usuallytherearenosanctions(i.e.teeth)tobiteifun-sustainableconstructionpractice(definition,Iknow,isnoteasy)isperpetrated,butIamnowseeingBREEAM(BuildingResearchEstablishment’sEnvironmentalAssessmentMethod)andLEED(LeadershipinEnergyand Environmental Design’s ‘green building’ rating systems) standards imposedby contracts as recognised environmental ratings inperformance requirements.Manypublicsectororganisationsarerequiredtocomplywiththesestandards-andmanyprivatecompanieschooseto,becauseoftheircredibility.Manyofmymaincontractor clients employbothBREEAMaccredited assessorson staff, aswell asLEEDaccrediteddesigners.

Yetinallthis,weseesometrendsemerging.Thereisadiscernibleandincreasing29.trendtowardsamarketrequirementforsustainabledevelopmentandthecreditcrunch will not obviate this; one can see this particularly amongst the majorcommercialprocurer/developerssuchasQuintain,BritishLand,Hammerson,andLandSecurities,CanaryWharf,etc.Greendevelopmentscanbemoremarketable,particularly where whole-life costing is taken into account,13 and developersandsomeclientsarenowusingsustainabilityasapositivedifferentiator. Fit-outcontractors likeMorganLovell,Overbury, ISG,Parkerayarealso forgingahead inadvocating anddoing sustainabledevelopment in their conversions and fit-outprojects.

TheEnergyPerformanceDirectiveandbadging

TherealgutsforchangehereintheUKhascomewiththeEnergyPerformanceof30.BuildingsDirective(EPBD)14whichrequiresinformationabouttheenergyefficiencyofbuildings tobeprovidedwhen theyare sold, rentedout,or constructed,notunlike the label you seewhenyoubuya fridgeordishwasher. Ithascreatedabenchmarkbut a fewcynics arequerying thepointof it. This requirementhasbeenimplementedinEnglandandWalesbytheEnergyPerformanceofBuildings(CertificatesandInspectors)(EnglandandWales)Regulations2007.

TheEnergyPerformanceCertificate-1October2008markedthefinalroll-•outofEnergyPerformanceCertificates(EPCs)toallbuildingsectorswiththeintroductionofEPCstorentedhomesandtheextensionofEPCstoincludeallcommercialbuildingswhenbought,sold,orrented.

TheDisplayEnergyCertificate-since1October2008DECsarerequiredfor•public buildings and those occupied by public authorities which have atotalusefulareagreaterthan1000m2andprovideapublicservicetoalargenumberofpeopleandarethereforefrequentlyvisitedbythosepeople(e.g.aschool,hospital,governmentorlocalauthoritybuilding).Thesecertificatesshowtheactualenergyusageofabuilding,theOperationalRating,andhelpthepublic(iftheyaresadenoughtoenquire)toseetheenergyefficiencyofabuilding.This isbasedontheenergyconsumptionofthebuildingasrecorded by gas, electricity and other meters used by a building over a12-monthperiod.

13. Essentially,whole-lifecosting(WLC)isameansofcomparingoptionsandtheirassociatedcostandincomestreamsoveraperiod.Coststobetakenintoaccountincludeinitialcapitalorpro-curementcosts,opportunitycostsandfuturecosts.Onlythoseoptionsthatmeettheperformancerequirementsforthebuiltassetshouldbeconsid-ered.AwarenessofWLCisgrowingwithintheUKconstructionindustry.IthasbeenidentifiedasamechanismtodeliverimprovedvalueformoneyandgovernmentclientsaretargetedwithusingWLC.

14. (2002/91/EC)



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I• n addition, since January 2009 new regulations also require that all air-conditioningsystemsabove250kWareinspected.Thoseover12kWmustbeinspectedby4January2011.Thisworkmustbecarriedoutbyanaccreditedinspector.Why?BecauseM&E is hugelypowerhungry and setupwrongcostsafortunetoruninlargebuildings.

Thus, the application now of Energy Performance Certificates• 15 (EPCs) toallbuildingsbringsthe issuetothe foreandweareseeingan increase in“greenleases”16andcovenantedrightsandobligations,whichaffectrepair,replacement,andrenewal.

Energy labellingofbuildingshasbeenconsidereda critical factor in theenergy31. performanceofbuildingssincethelate1990’s.So,nowwehaveit.However,asthecynicswillknow,it’sonethinghavingalabel,anotherthingrunningthebuildingefficiently.ManycostsconsultantsandbuildingservicesengineersIhavespokento have remarked on how poor use of control settings, buildingmanagementsystemsetc.canwreckthestatisticsontheEPCticket.Therefore,peopleneedtobe educated too anddesigners need tohaveusersmore clearly inmindwhenplanning their buildings. The fact that the energy efficiency programmes canreduce the energy consumption in the developed nations that are consumingmoreenergyhasmadeitimperativetoaccomplishtheenergylabellingprocedureworldwideas itcreatescompetition in the rightarea. G.J.Levermore (2002)hasstatedthattheenergylabellingofbuildingsindevelopednationswillnotonlyhelpreducetheenergyconsumptionbutalsopavethepathforachievinganenergyefficienteconomy.Weshallhavetoseeifheisright.

Theroleofcontractlawinsustainability

Contractually,thestageatwhichsustainabilityaimsneedtobeaddressedisatthe32.startwhenplanningthebuild–theprojectfeasibilitystage.Simplyapplyingthetag“sustainabledevelopment”toprojectsismeaninglessunlessitisgivenanexplicitmeaning,andonewhich isbespoketothespecificprojectandtotheparticularenvironment inwhich that project is located. Only once theseobjectives havebeenascertainedcantheybeproperlyreflectedintheemployer’srequirements/specification (or the equivalent performance requirement), and carried throughintothedraftingoftheconstructioncontract.Withoutclearrealisableobjectives,thereisarealdangerthatthedesiredoutputswillnotbemet.

Thereareanumberofcontract-invokedmechanismsforclientstochoosefromto33. ensuresustainablebestpractice.Thebestandlongtermensurethatspecificationanddesigncriteriatakeaccountofthelong-termsustainabilityoftheproject–notjustintermsofthedesignlifeofmaterials(e.g.massconcreteversuslightframe)butalso intermsofthecostsofoperationandmaintenanceoverthe lifetimeofthe asset. This issue of embodied energy17 has become an important criterion,i.e. lookingat theenergytomaketheelementsof thebuildnot just theoutputconstruction.Isthebuildingsuitableforitssetting?Isitfittinglylocated?Hastheabilityofuserstopayforlong-termoperationandmaintenancebeenconsidered?Whataboutlegacyissues?Onecanseethattherearetensionsinthisbecause,onanindividualprojectbasis,someinterestsareshortterm:thecontractor’sinterestoutsidePFI and facilitiesmaintenance isusually limited to thebuildperiodplusdefectsliabilityperiod.Theowners’interestmaybethenext30years.

Itisnotalwayseasyadequatelytodefineasustainabilityobjectiveincontractual34.terms. It is also very important that the entire construction team buys intotheprocess(itispartculturalandparteducational)and“buy-in”canbeachievedthroughmorestrictdraftingofabsoluterequirements(sofaraspossible)referringto supporting documentation for implementation.My belief is that aspirationalapproaches to sustainable construction are as weak as dishwater and franklyfutile.Farbettertosetout,byrevisedConditionsandSpecifications,whatistobe

15. Since1October2008,allbuildingswheneversold,built,orrentedneedanEnergyPerformanceCertificate(EPC)onascaleofA-G.Themostefficient,whichshouldhavethelowestfuelbills,areinbandA.Since6April2008,asfarascom-mercialbuildingsareconcerned,EPCshavebeenrequiredfortheirsale,rental,orconstruction.

16. Theconceptof“greenleases”hasbeenintroducedinAustraliatoaddressthesplitincentives,informationasymmetryandsupplychainissuesfacedbythecommercialofficemarketsector.

A“greenlease”isaleasebetweenthelandlordandtenantofacorporatebuild-ingwithanadditionalsetofschedulescomparedwitha“normal”leasecontract.Greenleasesincludealegalbasisformonitoringandimprovingenergyperformance,whichprovidesmutualcontractualleaseobligationsfortenantsandownerstoachieveresourceeffi-ciencytargets(e.g.energy,water,waste)andtominimisetheenvironmentalimpactsofanorganisation’sestate.Thisensuresthatabuildingoperatesatanagreedlevelthroughregularmonitoringandaddressingissuesastheyarise.

17. Embodiedenergyofabuildingistheenergyusedtoacquirerawmaterialsandmanufacture,transportandinstallbuildingproductsintheinitialconstruc-tionofabuilding.Embodiedenergyisanewconceptforwhichscientistshavenotyetagreedabsoluteuniversalvaluesbecausetherearemanyvariablestotakeintoaccount,butmostagreethatproductscanbecomparedwitheachothertoseewhichhasmoreandwhichhaslessembodiedenergy.Comparativelists(foranexample,theBathUniversityEmbodiedEnergy&CarbonMaterialInventory)containaverageabsolutevalues,andexplainthefactorswhichhavebeentakenintoaccountwhencompilingthelists.



9

achieved,suchastherequirementformoresustainableproducts(withoutvagary)orendsolutions likesay installingbiomassboilers (are theynotdirtier?),SUDS,18 maximisingtheuseofthestackeffecttoreducetheneedforM&Eplant,naturalandmanufacturedshadeorgreywaterflushingsystems. Thesocialhousingsector isalreadyfamiliarwithprovisionsinbuildingcontractswherecontractorsmustcomplywiththeCodeforSustainableHomesorwithsofter“green”partneringcontracts,the latter are oftenonly gooduntil the ink is dry on the contract, and in thesehardeningtimespartneringusuallygoesoutthewindow. Apreferablemediumof compromise is specific customised contract drafting adopted to incentivisetheprojectteamwhilsthavingsomebite;itshouldnotimposeimpossiblebarrierseitheronsuppliersandtheiradvisersoronthelegalcommunity.Herearesomenon-exhaustiveexamplestosetusoff:

Prohibitedordeleteriousmaterials clausesare frequentlyput incontracts(i)andprovideaninventoryofmaterialsnottobeused,orcodesandstandardstobecompliedwithonpainofsomecontractpenalty.Thistypeofclausecanbeadaptedtoincludeapositiveabsoluteobligationtousesustainablematerials, for example softwood from sustainable forests or materialsrecommendedintheBREGreenGuidetoSpecification(thelatestJune2008edition),whichprovidesguidanceontherelativeenvironmentalimpactsofover250elementalspecifications.

Alternatively, a contractor might be given a compensable right to an(ii)extension of time for any procurement difficulty in obtaining specifiedmaterials or products for the sustainable objectives of a project. A pain/gain sharemechanismcouldbeusedasonsomeBAAT5contracts,withthecontractoranddesignteamsharingamonetarybenefitif,forexample,thedevelopmentisprocuredwithinveryspecificdeliverables,suchasfiniteenergy efficiency ratings, reuse of demolition arisings like masonry andcementatiouswaste,usingForestStewardshipCouncil(FSC)certifiedtimberorotherrecycling/wastemanagementtargetsonthingslikeaggregatesandsand.Reducingwaste is ahuge issue.19However, anenlightenedclient isrequired.

Thereare,ofcourse,alsoanumberofcurrentcontractualprovisionsinmany(ii)standardformcontracts,whichcanbetailoredtoaddresssustainabilityorrampupstandardslikeBREEAMorPartLbyspecifiedquotientscapableofmeasurement.ForexampleStanhope isadeveloperthatcalls forandhasachievedcurrentlyintherange10–20%betterthanPartL2006.

Changeoflawclauses:commonlytheriskofanycostimpactofachange(iii)in legislation sitswith theemployer in the standard formsbut in the realworldisoftenshuntedtothecontractorandsustainable/green/regulatorychangescanbeimposedtoo.Inalong-termdevelopmentprojectlikeaPFIhospital,theseadditionalcostscanbehigh,forexamplemandatorytestingandratingforEPCs.Addressingwhoisbestplacedtomanagethisriskattheoutsetisimportant,asoversaythenextthreeyearschangesinthelawinthesustainabilityfieldwillinevitablybeintroducedandwilllikelybecostlytomeet,soitisanissuetoaddressatthedraftingstage.

Managementandtreatmentofsitewastemayalsobeexpresslyaddressed(iv)inthecontract.Whilstobviouslysince6April2008,anyconstructionprojectworthmorethan£300,000invaluethatisunabletoprovideevidenceofaSiteWasteManagementPlan(SWMP)canbefined,smallerjobsandlargeronescanalsoincludeacontractualstipulationtocomplywiththeCIRIA,Construction Waste and Resources guidance on sustainable buildingandconstructionwaste,andconsidermoreeffectiveuseofaSWMP.Thisprocessmustalsoidentifywastemanagementoptionsincludingreferencetothewastehierarchy,on-andoff-siteoptions,andpayparticularattention

18. SustainableUrbanDrainageSystems

19. Theconstruction,demolition&excava-tion(CD&E)sectorgeneratesmorewasteinEnglandthananyothersector,andisthelargestgeneratorofhazardouswaste,around1.7milliontonnes.Bycomparison,thesectoraccountsfor9–10%ofGDP.



10

to arrangements for identifying and managing any hazardous wastesproduced.

Inaddition, thereareanumberofcontractualstipulations thatdirectlyor(v)indirectlyaddresssustainability.Theserangefromuseofvalue-engineeringandriskregisterclausestoencourageinnovationandefficiencyofdesign,use of “Recycling” or “Wastage” clauses, as hinted above, to promoteminimal waste, appointing an Environmental Compliance Officer on-siteand instituting systems such as waste management plans, to ensuringprocurementofsustainablematerialsbysettingupframeworkarrangementswithparticularsuppliers.Take,forinstance,clause13.2ofFIDICConditionsofContractforEPC/TurnkeyProjects(SilverBook),avalue-engineeringclause.Thisgivesthecontractortheoption(nottherequirement)to:

“at any time ‘submit a written proposal’ which (in the Contractor’s opinion) will if adopted, (i) accelerate completion, (ii) reduce the cost to the employer of executing, maintaining or operating the Works, (iii) improve the efficiency or value to the employer of the completed Works, or (iv) otherwise be of benefit to the Employer.” [Emphasis added]

Theonlydifficultywiththisconditionisthatthecontractorcannotrecoverthe cost of preparing any proposal. This means that except where thecontractor is confident thathisproposalwill be adopted, there isno realincentive to propose efficiencies. Furthermore, there are difficultieswithevaluationofvalue-engineeringprovisionsasHoareLea’srecentreportontheproposedrevisionsforPartLin2010reveal.20

FIDICresortstothestandardvaluationprocedurebutsomeofsuchclausesattempt to evaluate the“benefit” in restitutionary terms to the employerand allow the contractor a percentage share. This is because alterationstodesignthatimprovevalueorefficiencymayinfactdiminishthecapitalcostoftheprojectandconsequentlymayresultinadecreaseintheoverallconstructioncost–again,littleenticementtothecontractorunilaterallytoproposesuchchanges.

Then there is conditions precedent, which can be added to a contract(vi)to introduce somethingof a contractual sharp stick to certifyingPC.OnepossibilitymightbeimposingthetopEnergyStar21BREEAMstandard,i.e.thenewestBuildingResearchEstablishmentEnvironmentalAssessmentMethod(BREEAM)standard,orMertonRulePus22asaconditionofthecertificationofpracticalcompletionofaprojectormilestone.Soonecouldmakeagoodscoreonkeyelements suchasenergyefficiencyandwater consumptioncompulsory,notoptionalastheyarenow.Thisrequirementcouldbelinkedtofundingrequirementsorobligationsinaleaseordevelopmentagreementtoensurethecontractpackageisbacktoback.

Onecouldalsoborrowfromtheworldofprocessengineeringperformance-(vii)relatedliquidatedandascertaineddamagesiftheas-builtprojectwasoutsidestatedparametersofefficiencyatgivenconstantsprovidedtheclausewasnotconstruedasapenalty.

Thentherearethoseprovisionsrequiringcontractorsto“useallreasonable(viii)endeavours” to maximise cost recovery by reusing, recycling, selling, orotherwisecommerciallyexploitinganyarisings,wasteor reusableprocesspartswhicharealsobecomingmorecommon.Pointstoobserveherearethevariouscriteriatowhichsuchprovisionsaresubject(commonlytheyarequalifiedwiththewords:“withoutderogatingfromanyotherobligationoftheContractorunderthisContract”and“totheextentpermissiblebyLawandpracticable”).

20. HoareLea’sstudymodelledtwo2006-compliantbuildingsusingthetrialPartL2010software.Therewereafewsurprises,notleastitsapparentfavour-ingoffan-coilsystemsoverventilationwithpassivecooling.Therealsoappearstobesomeobviouscodingerrors.Ofperhapsgreatersignificancewasthat,onthebuildingsmodelled,itseemedcompliancecouldonlybeachievedwithrenewableenergysuchaswindorsolar,indicatingthatimprovementsinenergyefficiencyarereachingtheircost-effectivelimit.

21. BREEAMEnergyStaristhelatestaddi-tiontotheBREEAMfamilyofsustain-ablebuildingstandards,whicharecontinuallyupdatedtomakenewandexistingbuildingsmoresustainableandcosteffectivefromcradletograve.

22. Launchedon1August2008,stagger-inglythenewstandardaimstohelpnon-domesticbuildingsbecomezero-carbonratedby2019.



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The obligation also tends to be limited to reasonable endeavours ratherthan absolute ones. Such requirements alsoneed tobe clear as towho“owns” thewastageand thereforeanyfinancial advantage from recycling.Onemorefactortothinkaboutiscosttreatment:intargetcostcontractsanyfinancialbenefitcouldbetreatedasacredit,soreducingtheoverallprojectcost.Debatably,abetterincentivetoencouragerecyclingandlowwastagewouldbetoallocateanyproceeds50:50withthecontractor.

For long-term framework agreements - where the client is procuring a(ix)seriesofprojectsoverasetphase-anemployermightalsoconsiderusingspecificenvironmentalKeyPerformanceIndicators(KPIs)tomeasureoverallenvironmentalperformance.ThemainadvantageofusingKPIsasameasureof performance is that they can bemoulded to suit the client’s specificrequirements,canbeadaptableduringthetermandthereforesensitivetomarkettrends,andcanalsobeframedtorewardgoodperformanceratherthansimplydisciplinebadperformance.

With regard to what the standard forms are doing on sustainability, the Joint35.Contracts Tribunal was the first, through Professor Peter Hibberd’s23 efforts24, toaddressthisissueinitsFrameworkAgreementthreeyearsagoandnowintoallitssuiteofcontractssinceMay2009.SoonwecanexpecttheJCTfamilytoleadwithdomesticwork.

In JCT’s Building a sustainable future together paper published this May it is36. interesting that they report that their consultation on introducing sustainabilityprovisionsintotheircontractsrevealed86%ofrespondentsbelievethatcontractclausesmustbelegallyenforceable,withclearremediesfordefault,otherwisetheyarelikelytobeignored;althoughitwasacknowledgedthatothersanctionsmightapplybutwhatbenchmarks istheissue.Themostoftenstatedsanctionbeingalossincontinuityofwork,whichinaframeworkarrangementcouldbepainful.

Objectivemeasuresare importantbecausepartieswhoenter intocontractwant37.certainty,insofarasthatispossible.SomaybeBREEAMratings,theMertonRuleandMertonPlusRule,SiteWasteManagementPlans,EnergyPerformanceCertificates,Display Energy Certificates and Constructing Excellence’s Key PerformanceIndicators(KPI)couldbethewayforstipulationandform.

From a facilitative standpoint the principal JCT suited contracts for securing38.sustainabilitybenefitsareasfollows:

JCTFrameworkAgreement2007togetherwithanunderlyingJCTcontracte.g.•StandardBuildingContract,Design&BuildContract

JCT Constructing Excellence Contract 2005 and its associated ProjectTeam•Agreement

JCTPre-ConstructionServicesAgreement(GeneralContractor)2008•

JCT Pre-Construction Services Agreement (Specialists) 2008, together with•anotherJCTconstructioncontractforthesecondorsubsequentstage

JCTConsultancyAgreement(PublicSector)2008.•

StandardFormContractsandsustainability

Majorstepsforwardhavebeenmadeinimprovingthesustainabilityofbuildings39.throughdesign,but rather lesshasbeendonetoaddresssustainability in termsof product specification and the construction process itself. Thus domesticallywhile in a number of cases Standard FormContracts having undergone recentrewrites (likeNEC),generally theyhavenottakenmuchaccountof theneedfor

23 GeneralSecretaryoftheJCT.

24. By“Exploringwaysinwhichtheenviron-mentalperformanceandsustainabilityofthetasksmightbeimprovedandenvironmentalimpactreduced”.Thekeyissuesfortheworkinggroupwillbehowfarthedraftingistakenindefiningwhatismeantby“sustainability”andtheextenttowhichsuchobligationswillbelegallyenforceable.Itseemslikelythatthedraftingwilltaketheformofgenericsustainabilityclausescoupledwithspe-cificguidanceonimplementation.



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sustainability-saveforJCT.Havingsaidthis,therearefirmsignsthatsustainabilityandtheenvironmentisfindingitswayintostandardformconstructioncontracts.

As I havementioned, JCThaspublishedBuildinga Sustainable FutureTogether,40.as a guidance note which is principally concerned with how sustainability indesignandconstructionisprovidedforincontractdocuments,andwiththe2009amendmentsto2005(revision225)ithasputsustainabilityprovisionswithinallitscontractssinceMay2009.26

ThedecisionbyJCTtotacklesustainability,thefirstcontractauthoringbodytodo41.so,followedwideconsultationwiththeindustry.ThedevelopmentphaseinvolvedextensiveliaisonwiththedifferentelementsthatmakeuptheJCTcouncil,whichincludeRIBA,RICS,BPF,LGA,NSCC,CCandSBCC.

IthinkJCThasgotthebalancerightinnotseekingtoimposeunyieldingcriteria42.uponparties,orstrictobjectives.Insteadtheyintroduceaframeworkunderwhichthecontractcanencompasssustainability.Theguidancedocumentstressesthattheclient’scommitmentandtheearlyinvolvementofthesupplychainareessentialtoachievesustainability,bothinthedesignandtheconstructionprocesses.Itisnotprescriptive.

Thus,thecontractor isencouragedtosuggesteconomicallyviableamendments43.to the employer’s requirementswhich, if instructed as a variation,may result inimprovementinenvironmentalperformanceinthecarryingoutoftheworksorofthecompletedworks.TheJCTsaysthecontractorshallprovidetotheemployeralltheinformationthathereasonablyrequestsregardingtheenvironmentalimpactofthesupplyanduseofmaterialsandgoodswhichthecontractorselects.

These clauses are supported by provisions dealingwith performance indicators44.andvalueengineeringasthese,ifnotessential,arebeneficial.

TheJCTisattemptingtoprovideacontractualframeworkthatwillbeaconstant45.reminder of the need to address sustainability. The framework recognises thatcontract conditions play a part but also that documentation will deal withsustainability inotherways,suchaswithinnotesandschedulestospecificationsanddrawings. It also acknowledges that eachproject isuniqueandeachclientmaywishtosetdifferentrequirements.AsIhavealreadymentioned,mostofthecostofaprojectisdeterminedintheinitialstagesofdesign;JCThasunderstoodthis fundamentalwithsustainability.Decisionsonsustainabilityariseboth in thedesignand intheconstructionprocessesbuttheformerwill invariablyhavethegreaterimpact.

Consequently,theprocurementroutewilldeterminethesustainabilityprovisions46.containedwithintherespectivecontracts.

Asnotedabove,mostcontractsalreadyincludeprovisionstocomplywithstatute47.andstatutoryrequirements. Further,theJCTisnotstartingfromscratchwhenitconsidershowtoincorporatesustainabilityprovisionswithinitscontracts.

The JCT Framework Agreement 2007 was therefore the first of a number of48.sustainabilityprovisions.

Clause16oftheJCTFrameworkAgreement2007providesthefollowing:49.

The Provider will assist the Employer and the other Project Participants in exploring ways in which the environmental performance and sustainability of the Tasks might be improved and environmental impact reduced. For instance, the selection of products and materials and/or the adoption of construction/engineering techniques and processes which result in or involve:

25. Themainpurposeofrevision2istoaddtheprinciplesadoptedbytheOfficeofGovernmentCommerceintheAchiev-ingExcellenceinConstructionInitiative;tosimplifythepaymentprovisionsandintroduceprovisionsforaretentionbond;andtorecognisetheincreasingimportanceofsustainability.Theformofthecontractremainssubstantiallyunchanged.

26. FollowingpublicationoftheRevision

2versionofacontract,theRevision1Contractandits98equivalenthavebeenwithdrawn.Withdrawncontractsareavailablewithan“outdated”watermarkthroughSweetandMaxwellDocumentDeliveryService.



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.1 reductions in waste

.2 reductions in energy consumption;

.3 reductions in mains water consumption;

.4 reductions in CO2 emissions;

.5 reductions in materials from non-renewable sources;

.6 reductions in commercial vehicle movements;

.7 maintenance or optimisation of biodiversity;

.8 maintenance or optimisation of ecologically valuable habitat; and

.9 improvements in whole life performance

[Emphasis added]

Thisisexplainedinparagraph56oftheguidewhichstates:50.

In line with the UK strategy for more sustainable and environmentally sensitive construction, the Provider is encouraged to assist the Employer [I agree it is all a bit touchy feely] and the other Project Participants in exploring ways in which environmental performance and sustainability of Tasks might be improved and environmental impact reduced:

reductions in waste• – not only reductions in the proportion and/or volume of materials wasted in the construction process but also the volume of extracted materials, demolition waste etc. which have to be removed from site during the construction process;

reductions in energy consumption• – not only the energy consumption of the completed works/facility but also energy used during the construction process;

reduction in mains water consumption• – again, not only the water consumption of the completed product/facility, but also water consumed during the construction process;

reductions in CO2 emissions• – a goal in itself as well as a measure of success in achieving other environmental objectives such as reductions in energy consumption, reductions in use of materials from non-renewable sources, reductions in vehicle movements; and improvements in whole life performance;

reductions in materials from non-renewable sources• – an essential requirement of sustainable construction;

reductions in commercial vehicle movements• – to and from the site of the Task;

maintenance or optimism of biodiversity• – for instance, if it is necessary to chop down an area of mixed woodland to construct part of the works the Parties should endeavour to replace such area with a similar mix of species, not just an area of homogeneous conifers;

maintenance or optimism of ecologically valuable habitat• – a comparison of the area of ecologically valuable habitat within the total project site area at completion of the Task as compared with that at the start; and



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improvements in whole-life performance• – looking beyond the immediate construction process to the long-term use, operation, maintenance and replacement of the project and/or project components.

The question is, then, how do you ensure compliance with these important51.provisions?Theanswerismonitoringwithafirmhand.Provisionforthemonitoringof all parties to the Framework Agreement is provided for in clause 21 and inparticularclause21.4whichstates:

The Employer and Provider will jointly review the Employer’s report with a view to:

.1 Identifying aspects of the Provider’s performance which may have been overlooked;

.2 Identifying aspects of the Employer’s performance, or that of other Project Participants, which may have had an adverse effect upon the Provider’s performance …

.4 Identifying any particular aspects or elements of the Provider’s and/or the Employer’s and/or other Project Participant’s performance which could be improved upon; and

.5 Assessing whether the existing Performance Indicators have proved to be, and are likely to remain until the next assessment, fair, reasonable and appropriate indicators of the Provider’s contribution to progress in achieving the Framework Objectives.

By setting sustainability as a Performance Indicator the parties to a Framework52.Agreementcanmonitoreachother’sperformanceandidentifywhenstandardsarenotbeingmet.However,thisisallvery“soft”lawIagree.

The problemwith such provisions is that they have no teeth. They aremerely53.aspirationalratherthanstipulativeandithastothenbequestionedwhetherthereisanypointinagreeingtosomethingbeingnon-binding,whichisthecasewiththeseprovisions.Whichiswhy,giventhefeedbackontheJCTconsultation,thatwemayseeinthefutureprovisionforstipulationlikeMertonRuleplus5%inallnon-residentialprojectsoutsidecity/towncentres?

Alternatively,compliance(withbenchmarks,maybePartLplus15%54. 27)couldbesetaspartoftheconditionfortheissuingofthecertificateofpracticalcompletion/takingoverpredicatedonwell-definedcriteriaorstandardsprovideditwascapableofprecisemeaningandnotopentoendlessargumentastowhetherithadbeenachieved.

TheJCTconsultationshows55. sustainability provision generally should be included primarily within the specification and design criteriaofaprojectandthereforeincludedinthe:

Preliminaries•

Preambles•

Specification,whichmayincludeameasuredworkssection,or•

Schedulespecificallypreparedfortheproject•

FIDIC’stakeonsustainability

AsforFIDIC,theFIDICRedBookmakesadirectreferencetotheprotectionofthe56.environmentinclause4.18whichstates:

27. Buildingsaccount,directlyandindirectlyfor,44%oftheUK’scarbonemissions.TheGovernmenthaslongsignalleditsintentiontomovetozerocarbonbuildings,startingwithhomesin2016andfinishingwithallotherbuildingsby2019.BuildingRegulationsPartLhasanimportantroleinachiev-ingthisgoal.PartLregulatesthecarbondioxideemissionsfrombuildingsthroughthecontrolofenergyuseinbuildings.TherequirementsaresetoutintheRegulations,withguidancegivenintheapproveddocuments.Thereareseparateapproveddocumentsfornewandexistingbuildingsandfordwellingsandallotherbuildings.



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The Contractor shall take all reasonable steps to protect the environment (both on and off the site) and to limit damage and nuisance to people resulting from pollution, noise and other results of his operations.

The Contractor shall ensure that emissions, surface discharges and effluent from the Contractor’s activities shall not exceed the values indicated in the Specification, and shall not exceed the values prescribed by the Applicable Laws.

AlsofromFIDICthereisafurther,moreobliquereferencetosustainabilityinclause57.13.2whichprovidesthattheContractorcan:

at any time [submit a written proposal] which (in the Contractor’s opinion) will if adopted, (i) accelerate completion, (ii) reduce the cost to the employer of executing, maintaining or operating the Works, (iii) improve the efficiency or value to the employer of the completed Works, or (iv) otherwise be of benefit to the Employer.

Theonlydifficultywith this condition is that theContractor cannot recover the58.costofpreparing anyproposal.Thismeans that exceptwhere theContractor isconfidentthathisproposalwillbeadopted,thereisnorealincentivetoproposeefficiencies.Furthermore,therearedifficultieswithevaluationofvalueengineeringprovisions. FIDIC resorts to the standard valuation procedure but some of suchclausesattempt toevaluate the“benefit” in restitutionary terms to theEmployerandallowtheContractorapercentageshare.Thisisbecausealterationstodesignthatimprovevalueorefficiencymayinfactdiminishthecapitalcostoftheprojectandconsequentlymayresultinadecreaseintheoverallconstructioncost–again,littleenticementtotheContractortounilaterallyproposesuchchanges. Finally,proposingtheuseofamorecostlybutsustainablealternativemaynotbemetwithapositiveresponsefromaclientdeterminedtomaximisetheirprofit.

Consultantappointments–usedasaroutetosustainabledevelopment

AboveIhavesetoutthelimitedrequirementsplacedonContractors,butwhatof59.theotherlimboftheconstructionteam,Consultants.

Almost all Consultant Appointments require that the Consultant enter into a60.CollateralWarrantywhichprovidesfortheConsultanttoprovideitsservicesusingthereasonableskillandcareofaConsultantinthesamefield.

This general duty then is made more specific and usually addresses the use61. of deleterious materials, and often is in the following prohibitive form whichdeliveratelydoesnotspecifymaterials:

(i) Whicharedeleteriousorcapableofbecomingdeleteriouswhenusedinaparticularsituationorincombinationwithanyothermaterialormaterials;

(ii) anysubstancereferredtoasbeinghazardoustohealthandsafety inOveArup1997Report:‘GoodPracticeintheSelectionofConstructionMaterials’asmayberevisedorreissuedfromtimetotime;

(iii) or any other substance not in accordance with British Standards (whereapplicable)oranequivalentofnolessastandardofcodesofpracticeandgood building practice as set out in any United Kingdom or any otherEuropeanpublicationofarecognisedbodyorinstitution.

This is a verynegativedefinitionandperhaps there is room for amorepositive62.provision in Consultant Appointments - say a requirement that the Consultantspecify for use materials from the BRE Green Guide to Specification or similardocument. However, that is not without controversy it seems amongst thearchitecturalprofession.28

28 Muchbadfeelingseemstobeemerg-ingaroundarecentlypublishedguideforspecifyingsustainablematerials.ThenewlyupdatedBREGreenGuidewasreleasedwithsomefanfaretothemarketbackinJune,offeringavitalresourcetodesignteamsgrapplingwithrequirementsfortheCodeforSustainableHomesandBRE’sownenvironmentalassessmentmethod(BREEAM).

Thelatestversionwaspublishedonlinewhich,apartfromsavingpaper,alsoallowsBREtoupdateandamendentries.Theguidecovers1,300genericspecifications,andalsomeasurestheembodiedimpactofmaterialsandbuildingcomponentsforgenericbuild-ingtypes,usingittoassignasinglerating,rangingfromA+toE.

Sofar,sogood.However,anythingwithagreenorsustainablemonikerisboundtoattractcontroversy,andtheGreenGuideisnoexception.AspatemergedovertheratingsgiventoPVCuwindowscomparedwithtimber.Theformerhadleaptfromacould-do-bet-terCstandardinthe1999versionoftheguidetoaneartop-of-the-classAinthenewversion!Giventheoriginofplastic–oil-concernsaroseoverhowPVCuhadmadesuchamarkedimprovement.

SotheGuideisnopanacea.



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Theshapeofthingstocome–wherearewegoing?

Whilstinthepast,onlylipservicewaspaidtothenotionof“sustainabledevelopment63. andbuilding”,increasinglytheidealofactivelyembracingsustainabledevelopmentisbeinggivenshapeandform,throughpersuasion,policy,regulation, legislationandnowthroughcontract. There isconsiderableagreementamongemployers,developers,buildingtechnologists,funders,institutions,governmentandanalyststhatenvironmental sustainability ismakingandwillmakeavery real impactonhowclientsandthecorporateworldprocurebuildingsandviewtheconstructionprocess,andhowbusinessisaudited.Higherenergyandmaterialpricesareaffectingoureverydaylivesincommerce,inindustryandinourhomes.Weneedtoadoptthefairestandsafestwaytoprotectourselvesagainsttheeffectsofinsecureandcostlyhighcarbonenergysuppliesandcatastrophicclimatechange.

Theperiodahead,Ibelieve,isgoingtobelessaboutfixedgoalsperse,althoughthe64.ClimateChangeActherewillbeahugecatalysttochange,thanaboutinnovationandentrepreneurialsolutionstowhatwebuildorrefurbish,andwewillbegintoseemoreprescription inourcontracts toseethishappen,asclientsunderstandmoreandtheirconsultantsleadthemdownthePathof“Righteousness”.

However, not all Europe ismad keen on the ideals in practice. Indeed, as the65.scienceof climate changegets increasingly urgent, thewill of Europe’s politicalleaders to acton the climate crisis seems tobeweakeningby theday, judgingbytheEU’spackage29onclimatechangefollowingmonthsoftoughnegotiationsin the27-nationbloc. TheEUclimatepackagewasmeant toheraldanewandunprecedentedlevelofambitionintacklingclimatechange.Comparedwithwhatthesciencedictates,wearestillwayoffthemark.Thereare“destructiveforces”withintheEUrepresentingtheirowncountry’sself-interestsattheexpenseofanEU-widedeal.Italyusedthecurrenteconomiccrisisasanexcusetostickwithitspreferredoptionofcontinuingwithwhatis,toallintentsandpurposes,abusiness-as-usualapproach.Poland,withitsheavyrelianceoncoal,foughtandwonexemptionfromincurringthefullfinancialcostofburningcoaluntil2020.Mostsurprisingthough,wastheextenttowhichGermanyseemstohavebeeninstrumental inwateringdownthispackage,driven,itwouldseem,byaheavylobbyingeffortfromGermanpowerutilitiesRWEandEON,bothofwhicharekeentobuildnewcoal-firedpowerstations,notjustinGermanybutintheUKtoo.

Business being what it is there is an increasing concern that even the best-66. intentioned and professionally run corporate-responsibility initiatives cannotdeliversustainabledevelopmentonthescaleneededwithoutthelongarmofthelaw;noonewants“greenwashing”. What isneeded is thewide recognition thatwhatwedohasaneffect;doingnothingortoolittleisnotanoption30-morecarrotthanstick.Whoknows? Those inthistheatrewillseesomebigchanges!Evenifglobalwarmingisamyth–doingthingsthiswaywillbeworthalltheeffortinthelongterm.

29. TheEUpackagebuildsontheinterna-tionalcommitmentsmadeunderthe1997KyotoProtocol.Thesecommit-mentsonlyrununtil2012,soaUNconferencewilltakeplaceinCopenha-geninDecember2009tomapoutnewtargetsforthepost-Kyotoworld.EUgovernmentswantothermajorpollutersworldwidetoadopttargetssimilartotheEU’s-especiallytheUS,thebiggestpolluter.

30. Notunlikethebutterflyeffect,which

encapsulatesthemoretechnicalnotionofsensitivedependenceoninitialcondi-tionsinchaostheoryandnon-linearbehaviour.Smallvariationsoftheinitialconditionofadynamicalsystemmayproducelargevariationsinthelong-termbehaviourofthesystem.



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An update on payment law under construction contracts juxtaposed to the changes in 2009

Even though the construction industry has generally reacted favourably to the67.HGCRAct,therehasbeenuneaseamongstsomethatitdoesnotgofarenoughtoprotectsmallercompaniesandsuppliers.Manybelievethatthepaymentandnoticeprovisionsaretoocomplexandthatadjudicationisnotalwayssufficientlyaccessible. The traditional alternatives of litigation or arbitration are infamouslycostlyandtime-consuming.

TheGovernmenthassaidthereasonfortheBillwasthat:68.

“Extensive consultation with the construction industry has identified that while the Construction Act has improved cash flow and dispute resolution under construction contracts it is ineffective in certain key regards.”

Thekeypolicyobjectivesaretoimprovetheexistingregulatoryframeworkinorder69.to:

(i) Increasetransparencyandclarityintheexchangeofinformationrelatingtopaymentstoenablethebettermanagementofcashflow;

(ii) Encourage the parties to resolve disputes by adjudication, where it isappropriate, rather thanby resorting tomorecostlyand time-consumingsolutionssuchaslitigation;and

(iii) Improvetherighttosuspendperformanceunderthecontract.

TheGovernmentcommencedconsultationsontheActin2005.TheDepartment70.for Business, Enterprise & Regulatory Reform (BERR)31 and theWelsh AssemblyGovernmentjointlypublishedtheanalysisofresponsestothe2007ConsultationonproposalstoamendPartIIoftheHousingGrantsConstructionandRegenerationAct1996andSchemeforConstructionContracts(EnglandandWales)Regulations1998whichledtotheBillpublishedinJuly2009andamendedinDecemberastheLocalDemocracy,EconomicDevelopmentandConstruction(LDEDC)Bill settingout proposed amendments to the Act. The Bill has now passed through theHouseofLords(TheBillcompleteditsLordsstageson29April2010andLordTopecapturedtheviewsofamuchwideraudiencewhenhesummeduptheHouseofLords’viewoftheLDEDCBill2008:

“We think that some of it is unnecessary, some of it is undesirable andmuchofitiswellintentioned;thereisalsosomeofitwithwhichwesimplydisagree.Theonepointonwhich I thinkwewillallagree is that it leavesthisHouseinaverymuchbetterconditionthanitarrived,butnotyetinapristinecondition.”

ItisnowinforconsiderationbytheHouseofCommonsanddebatedatSecond71.Readingon1June.TheBillwassenttoaPublicBillCommitteethatcompleteditsconsiderationoftheBillon18June.TheBillwillbereprintedbeforecomingbacktotheHouseofCommonsforitsremainingstageson13October2009.

ThereforeitisnowinitsfinalstagesofgoingthroughParliamentwiththeReport72.StageandThirdReadingtogobeforeRoyalAssent.

However, the Government has indicated that there may need to be further73.consultations,soitishardtosaywithanycertaintywhenthechangeswillbecomelawanddelegatedlegislationpublished.

ThedraftConstructionContractBillproposesthefollowing:74.

31. ButcommontothisGovernment’sproclivitytochangethelabelonthetinlikesomechangetheirunderwear,on5June2009theGovernmentcreatedanewDepartmentforBusiness,Innova-tionandSkills(BIS).TheDepartmentwascreatedbymergingBERR(createdinJune2007,fromtheDTI)andtheDepartmentforInnovation,UniversitiesandSkills(DIUS).



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Contractsinwriting

TheremovaloftherequirementthatforthepurposesoftheHGCRAcontractshad75.tobeinwritingorevidencedinwritingremains.Thismeansthatadjudicationwillapplytoallconstructioncontractswhichareeitheragreedinwritingororally.

TheGovernmenthasputforwardtwomainreasonsforthis.Thefirstisinorderto76.encouragepartiestoresolvedisputesbyadjudication.ThustheGovernmenthasacknowledgedthedifficultiescausedbytheCourtofAppealdecisionintheRJTcaseasnotedby,amongstothers,HHJWilcoxwhointhecaseofBennett(Electrical)ServicesLtdvInvironLtd[2007]EWHC49(TCC)decidedthataletterofintentfailedtocomplywiththerequirementsofsection107.IncommentingonthedifferenceofopinionoftheCourtofAppealintheRJTcasehenotedthat:

The reasoning of Auld LJ is attractive because at the subcontractor level and where cash flow difficulties are likely to be encountered in the smaller projects, the paperwork is rarely comprehensive. The extent of the requirement for recording contractual terms for an agreement to qualify under section 107 laid down by majority could have the effect of excluding from the scheme a significant number of those whom the Act was perhaps intended to assist.

Second,thegovernmentnotedthatithasbecomecommonpracticetochallenge77.anadjudicator’s jurisdictiononthebasis thatnotall thecontractwas inwriting,somethingwhichservedtofrustratetheadjudication.RemovingtheeffectoftheRJTdecision shouldputa stop to that.Thenewproposals are intended to limitthenumberwhoareexcludedfromtherighttoadjudicatebyensuringtherighttoadjudicateappliestocontractswhichareoralorpartlyoralandnotjustthosewhich are evidenced inwriting. If thismakes it through, expect the volumeofadjudicationstoincreaseatleast10%beyondcurrentlevels.

ThedraftBillinJuly2008hadincludedanewclause115A,whichnotedthatany78.contractualprovisionsrelatingtoadjudicationmustbe“inwriting”asdefinedbythatsection.Thisproposednewsectionnolongerappears.

Adjudicationcosts

ThedraftConstructionContractsBillhadsetoutcertaincontrolsonadjudication79.costs. The intent remains, but there have been some changes to the previousproposals.Thenewclause, section108A, stillmakes it clear that anyattempt toallocatethecostsofadjudication(includingthecostsoftheadjudicator)betweentheparties,willbeinvalidunlessthatagreementismadeinwriting.However,insteadoftherelevantdateofthatagreementbeing“aftertheadjudicatorisappointed”,itisnow“afterthegivingofnoticeofintentiontorefer”.

Under thedraft July 2008Bill, the adjudicatorhadbeengivenanewpower,by80.virtueofsection108B,todeterminethatanyagreedallocation,madeinaccordancewithsection108A,ofanypartof thecostswhichaparty is requiredtopaywasunreasonable.Thatideahasnotbeenretained.

Finally,theexpressproposalmadeinJulybyvirtueofsection108Cthatpartiesare81.jointlyandseverallyliabletopayanadjudicator’sreasonablefeesandexpenseshasnotbeenpursued.

Adjudicator’spowertomakecorrections

ThedraftJulyBillincludedanewclausewhichhadtheeffectofrequiringtheparties82.toaconstructioncontractwhichwassubject toScottish law, toprovide in theircontractthattheadjudicatorhasthepowertocorrectaclericalortypographicalerrorinhisdecisionarisingbyaccidentoromission.Theprovisionconcernedmust



19

beinwriting.ThedraftJulyBilldidnotextendthatprovisiontoEnglandandWalesasthejudgmentinBloorConstruction(UK)LimitedvBowmer&Kirkland(London)Limited[2000]B.L.R314meantthatadjudicatorsherealreadyhavethepowertocorrectmistakesintheirdecisions.

ThenewBillmakesnosuchdistinction.Ashadbeennotedbymanycommentators,83.intheory,itwouldhavebeenopentotheappellatecourtstooverturntheBloordecision.

Interimpaymentdecisions

Under section109of theHGCRAcontractors are entitled toperiodicpayments.84.Concernhadbeenexpressedaboutclauseswhichmakespecificpaymentssubjectto“interimpayment provisions”. A new clausewas introduced by the July 2008Billtorenderineffectiveanycontractualprovisionwhichprovidedthatadecisiontakenbyathirdpartyastotheamountofanyperiodicpaymentis“binding”.Thishasnotbeenpursued.

Withholdingnotices

DespitethecriticismsofthedraftingoftheJuly2008draft[Bill?],thebasicscheme85.inrelationtotheamendmentstosections110and111remains.

Theoldpaymentandwithholdingnoticesystemhasbeenabandonedandisto86.bereplacedwithanewpaymentstructure.Giventhegovernment’sstatedaimofachievinganincreaseintransparencyandclarity,thiswasnotsurprising.

However,aquestionremainsastowhetherthenewschemeisactuallyanysimpler.87.Thenewsystem,aspersection110A,requires“paymentnotices”tosetoutthesumthepayerconsiderstobedueandthebasisuponwhichthatsumiscalculated.Italsoprovidesfor“payeenotices”,undersection110B,whichcanbegivenindefaultofthepaymentnotice. Ifthepayerdoesnothing,thepayeecanservetheirown“payeenotice”whichwillsetoutthesumthepayeeconsiderstobedueandthebasisuponwhichthatsumhasbeencalculated.

Theproposedchangeswouldallowacontractortoissuehisowndefaultpayment88.noticeifthepayerEmployerfailedtoissueoneontime.Thepayeremployerwouldhavetopaytheamountsetout inthedefaultpaymentnoticeunless it issuedalaterwithholdingnotice. Insomecircumstances,anearlierpaymentapplicationmadebythecontractorwouldserveasadefaultpaymentnotice.Inotherwords,thetablesmightturniftheemployerfailstocomply.

The sum set out in the“payment notice” or the“payee notice”will become the89.“notifiedsum”.Andapartycanonlywithholdpayment fromthenotifiedsuminaccordancewiththenewsection111.Thisnewsection111statesthatthepayermustpaythenotifiedsumunlessthepayeeisgivenanoticeofthepayer’sintentionto pay less than the notified sum.That noticemust specify the sum the payerconsiderstobedueandthebasisuponwhichthatsumhasbeencalculated.Thisiswherethemaincriticismsofthedraftlegislationarise.Thenewschemeisarguablymorecomplexthanbefore,underthe1996Act.

Thegovernmentsaysthatthisfallbackprovision,whichallowsthepayeetosubmit90.anotice,willhelp to improvecommunicationsbetweenthepartiesandhelptocrystallisethedebate.

Although thismight not seem new, a paying party is now required to include91.detailsofanyset-offorabatementinthenotice,somethingwhichiscurrentlynotalways thought tobenecessary.Thisshouldbringanendto theseriesofcases,forexampleRupertMorganBuildingServices(LLC)LtdvDavidJervisandHarrietJervis[2003]EWCACiv1563,aboutthemeaningofthe“sumdue”.Paymentnotices



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areseenbythegovernmentasanimportanttoolinachievingtransparencyandincommunicatingdetailsofpaymentswhicharemadeorareproposedtobemade.

Giventhegovernment’sclearmessage,itisnowunlikelyfortheretobeanyrecourse92.forafailuretoserveasection111notice.Therequirementtopaythe“notifiedsum”is intended further to facilitate“cash flow” by determiningwhat is provisionallypayable.What isproperlydueandultimatelypayable,asamatterof theparties’contract,isofcourseunaffected.

Thenew section 111 at subsection (10)makes reference to theHouseof Lords’93.decisioninMelvilleDundasLimited(inreceivership)andOthersvGeorgeWimpeyUKLimitedandOthers[2007]UKHL18.HeretheHouseofLordsdecidedthatthepayercould legitimatelywithholdmonies,notwithstandingthatno“withholdingnotice”undercurrentsection111oftheHGCRAhadbeengiven.

Thereasonwasbecausethecontracthadprovidedthatmoneysneednotbepaid94.in theeventof thepayee’s insolvency.As the insolvencyhadoccurredafter theperiodforgivinga“withholdingnotice”hadexpired,itwassimplynotpossibleforthepayertohavegivensuchanoticebeforehand.

Subsection10confirmsthattheMelvilleDundasdecisionremainsbutisconfined95.toinsolvencysituationsalone.

Failurestocomplywiththeexistinglegislationcanhaveunforeseenconsequences96.for the unsuspecting. Those consequences are likely to be more severe oncetheproposedchangesbecomelaw. Allpersonnel responsible forassessingandprocessingpaymentswillneedtobemadeawareoftheprotectiongivenbythechangestotheAct.

Conditionalpaymentclauses

Thenewsubsection1A,insection110,whichextendedthebanonpay-when-paid97.clausesremains.Thebanincludesrequirementswhichmakepaymentconditional:

(i) ontheperformanceofobligationsunderanothercontract,or

(ii) adecisionbyanypersonastowhetherobligationsunderanothercontracthavebeenperformed.

Therighttosuspend

Therighttosuspendworkonnon-paymentis[notoften][seldom]used,because98.it issuchaharshstep.Asitcurrentlystands,theActonlygivestherighttostopallwork. The changeswould allow a contractor to stop only part of thework.Thatmightbeafarmorepowerfulweapon,becauseitmeansthecontractorcanfocussuspensiononaparticularareaofwork,withouthavingtostanddownhissubcontractorsandsupplychainmembers. Therewouldalsobeanewright torecoverallreasonablecostsandexpensesincurredasaresultofstoppingwork.

Theunsympatheticproblemwiththerighttosuspendundersection112ofthe99.HGCRA is that, in the event of a legitimate suspension, the compensation towhichthesuspendingpartyisentitledunderthelegislationisnotgenerous.Thesuspendingpartywasmerelyentitledtoanextensionoftimeforcompletionoftheworkscoveringtheperiodduringwhichperformanceissuspended.Thatextensionwouldnotnecessarilyextendtotheseven-daynoticeperiodpriortotherighttosuspendbecomingoperative,norwoulditapplytothetimeittakestore-mobilisefollowingthesuspension.This issignificantsincetherighttosuspendceasesonpaymentoftheamount“due”infull.



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There is nothing to prevent the parties from conferring more extensive rights100.through the terms of the contract than the legislation provides. By way ofexample,clauses25.4.17and26.2.9oftheJCTWithContractor’sDesign’98entitlethecontractor toapply forextensionsof time in respectof“delayarising fromasuspension” and“loss and expensewhere appropriate, provided the suspensionwasnotfrivolousorvexatious”.DittosuspensionbythecontractorunderJCT05,clause2.29.5givesthisasarelevanteventresuspensionunderclause4.1432oftheperformanceofhisobligationsunderthiscontract.However,therewasnothingtoinsistthatthepartiesdidthis.Thenewdraftsection112(3A)introducedinJulyhasbeenretained.Thisclarifiesthepreviousproblembymakingthedefaultingpayerliabletopaythesuspendingparty“a reasonableamount inrespectofcostsandexpensesreasonablyincurred”asaresultofsuspending.

Thisshouldhelpthegovernmenttoachieveitsaimofmakingtherighttosuspend101.performanceamoreeffectiveremedy.

CurrentstateofthedraftBill

Oneofthedocumentsthatwerepublishedatthesametimeasthedraftbillwas102.anImpactAssessment(“IA”).Thisincludessomeinterestingcommentsabouttheadjudication process. In discussion upon providing adjudicators with immunityfrom third-party claims (somethingwhichwas considerednot tobenecessary),theIAnotesthatanaverageoffourcomplaintsaboutadjudicatorsareupheldeachyear.TheIAalsotalksintermsoftherebeing1,940adjudicationsperyear.ThisisaslightlyhigherfigurethantheresearchatCaledonianUniversitycurrentlysuggests.It also suggests that if anadjudicator’s independenceprovisionwasapplied,onaverageanadjudicatorwouldfailtheindependenceteston5%ofoccasions.Thisseems tobea surprisinglyhighfigure.Aswithmostof these IAsonehas tobecircumspectabouttheinputsourceandthereasoningbythecivilservants!

The IA also talks about the small firms’ impact test the government carried out103.andnotes inparticular that therehasbeenstrongsupportbyrepresentativesofsmallfirmsfortheseproposedchanges.Indeed,theIAconcludesbystressingthebenefitsoftheproposedamendmentstosmallbusinesses.Theseinclude:

(i) increasingaccesstoasimplemechanismforresolvingdisputes;

(ii) improvingcommunicationbetweenpayerandpayeeonwhatwillbepaidandwhen;

(iii) encouragingpromptadministrationandcommunicationofpaymentandimprovingtheefficiencyandproductivityintheindustry;and

(iv) enablingthepartiestocontinuetoworktogethereffectivelytodeliverhighqualityconstructionprojectsontimeandonbudget.

Theseareareaswhichshouldbeofbenefittotheconstructionindustryacrossthe104.board,somethingthegovernmenthasperhapsmissedinitsfocusonthesmallercompany.Of course,whether the legislationwill achieve thesegoals is anothermatterentirely.Certainlyaquestionmarkmustremaininplaceabouttheproposedpayment proceedings and it will be important that everyone concerned withpaymentissues,fullyunderstandswhatthesenewchangesmean.

Somerecentadjudicationcasesonpayment

Withholdingnotices

Apartythatdoesn’twanttopayanotherneedstoissueawithholdingnoticewitha105.reasonwhyit’snotpaying–butdoesthisreasonneedtobereasonable?

32. WithoutaffectinganyotherrightsandremediesoftheContractor,iftheEmployer,subjecttoanynoticeissuedpursuanttoclause4.13.4,failstopaytheContractorinfull(includinganyVATproperlychargeableinrespectofsuchpayment)bythefinaldateforpaymentasrequiredbytheseConditionsandsuchfailurecontinuesfor7daysaftertheContractorhasgiventotheEmployer,withacopytotheArchitect/ContractAdministrator,writtennoticeofhisintentiontosuspendtheperformanceofhisobligationsunderthisContractandthegroundorgroundsonwhichitisintendedtosuspendperformance,thentheContractormaysuspendsuchper-formanceuntilpaymentinfulloccurs.



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In 106. Windglass Windows Ltd v Capital Skyline Construction Ltd & Anr,33CapitalengagedWindglass to supply and install windows. The subcontract did not contain anadequate mechanism, in accordance with the HGCRA, for determining whatpaymentsweredueandwhen.Accordingly,therelevantprovisionsoftheSchemewereimpliedintothesubcontract.Adisputearosebetweenthepartiesconcerningunpaidinterimvaluations.Capital,whohadonlyrepliedtothesevaluationsontwooccasions,saidthattheywouldnotprocesstheapplicationsbecausetheywerenotintheappropriateformatandhadnotbeensignedbyCapital’ssitemanager.Thewithholdingnoticeswereinthefollowingform:

Our financial director has returned this application and is not willing to process this amount due to insufficient supporting information. Please note that our company policy is such that each subcontractor valuation must be presented in a standard format, copy attached, and authorised by the appropriate site manager before your application can be processed. Could you kindly re-present your application with the correct supporting information.

Windglassreferredthedisputetoadjudication,wheretheywereawarded£152k.107.CapitaldidnotpayandWindglasssoughttoenforcethedecision.Capitalarguedthattheadjudicatorhadexceededhisjurisdictionindecidingthatthewithholdingnoticeswereinvalidbecausetheydidnotincludevalidgroundsforwithholding.CapitalarguedthattheHGCRAdoesnotrequirethegroundsforwithholdingtobevalidforthenoticetobe[effective][elective].MrJusticeCoulsonheldthatCapitalwerewrongforfourreasons:

(i) Indecidingthat thenoticeswere invalid,andthatanycross-claimsraisedasdefencestothenoticesmustfailasaconsequence,theadjudicatorhadanswered the issues put to him. This was within his jurisdiction and theJudgequeriedwhetherthiswasajurisdictionalpointinanyevent;

(ii) TheargumentthattheHGCRAdidnotrequirethegroundsforwithholdingto be valid was wrong. The Judge disagreed that, as long as there wassomethingwhichpurportstobeawithholdingnotice,thenthatissufficientto justify withholding, regardless of content. There was no meaningfuldistinctionbetweena‘valid’andan‘effective’noticeins111;

(iii) Theadjudicatorprovidedreasonsastowhythewithholdingnoticeswerenoteffective:neithertheamountproposedtobewithheldnorthegroundsfordoingsoweresetout;and

(iv) Even if the adjudicator should have taken the alleged counterclaim intoaccount,itwassovague,unparticularisedandunlinkedtothetermsofthesubcontractthat itcouldnotoperateasavalidset-offtothewithholdingnotices.

Capital also submitted that their withholding notices could act as a ‘gateway’108.throughwhichtheycouldgainanentitlementtoraisedefencesintheadjudicationnotpreviouslyraised.TheJudgedisagreedonthebasisthattheHGCRAdoesnotpermit someone to put in an ineffectivewithholding notice to get around therequirementsoftheHGCRA,andtothenintroduceentirelydifferentargumentsatalaterdate.Thedecisionwasdulyenforced.

Asacomment,therewillbemanyadjudicators’sympathetictothesubcontractor,109.who has not been provided in awithholding noticewith any evidence of lossresultingfromapurporteddelayandwhoarguesthereforethatthenoticeisnotvalidandthesumdeductedmustbepaid.Itthinksthattheargumentissostrongthatitdoesnotbothermakingacasethatitdidnotcausedelay-itreliesonthewantfordetailinthewithholdingnotice.However,adjudicatorscannotassist.Anoticethatstatesthesumtobewithheldandthegroundforwithholdingisavalidnotice.The“ground”canbemanifestlywrong,butthatdoesnotstopitfrombeing

33. [2009]EWHC2022(TCC)



23

agroundandsofulfillingtherequirementsoftheAct.Ifmoneyisbeingdeductedbecausethesubcontractor’ssupervisordrovearedcar,sobeit.Thatisunlikelytobeagoodcontractualargument,butitisavalidnoticeofwithholding.Tochallengeit,thesubcontractormustarguethatredcarhasnocontractualsignificance,thatthesupervisorcannotdrive,andifhewasthemaincontractorhasnotsufferedanyloss!

Cananadjudicator’sdecisionbesetoffagainstanarbitrator’saward?

In110. Workspace Management Ltd v YJL London Ltd34 thecourtfoundthatitwas“clearbeyonddoubt” that theadjudicatorhadfoundthat thecontractorhadoverpaidtheemployer.Thiscouldbeseenfromtheadjudicator’sdecision(whichsetoutthepreciseamountoverpaid)andhisletterof6January2009.

Although the adjudicator’s decision did not direct the employer to repay the111. overpaymenttothecontractor,thecourtfoundthat:

the Adjudicator’s decision means that, as a result of the inexorable logic of his valuation, the Claimant [the employer] has been overpaid by the Defendant [the contractor] ... either the Adjudicator’s decision that the sum was due to the Defendant is express, or it is to be reasonably inferred from the inevitable and logical consequences of his valuation. (Paragraph 19, judgment)

Inreachingthisconclusion,thecourtreferredtotwopreviousTCCjudgmentson112.whatcanbe inferred fromanadjudicator’sdecision,David McLean Housing Ltd v Swansea Housing Association Ltd [2002] BLR 125 and Balfour Beatty Construction v Serco Ltd [2004] EWHC 3336 (TCC).

Althoughanadjudicatordidnotrequiretherepaymentofasumoverpaid,infinding113. thattherehadbeenanoverpayment,the requirement followed logically by reasonable inference, ifnotexpress.Theargumentthattheadjudicatorhadnojurisdictiontoconsiderwhetheranoverpaymenthadbeenmadefailed.Althoughthereferencewastoconsidersumsclaimedbyclaimantfromdefendant,theadjudicatorwasnotrequiredtostophisvaluationwithoutreachingafinal result.Thedefendantwasentitledtousethesumoverpaidasaset-offagainstanarbitrationawardagainstitbecauseitwasnotamerecounterclaimbutadecisionbindingontheclaimant.

However, it seems that114. a party cannot withhold payment against an adjudicator’s award by virtue of cross-claims and set-offs if he issues a notice of intention to withhold payment after the award is issued. Per:VHE Construction Plc v RBSTB Trust Co Ltd;35 Solland International Ltd v Daraydan Holdings Ltd;36 Construction Group Centre v Highland Council,37affirmed.Seetoo:Balfour Beatty Construction v Serco38 - Section 111 of the HGCR Act does not apply to payments due in consequence of an adjudicator’s decision.

Further,acontracttermwhichseekstooverridethestatutoryobligationtocomply115.withtheadjudicator’sawardwillnotbeeffective:seeFerson Contractors v Levolux,39 disapprovingBovis Lend Lease Ltd v Triangle Development Ltd40 and, it seems,KNS v Sindall,41 cf. David McLean Housing Contractors v Swansea Housing Association,42 wherethesumfoundpayablebytheadjudicatorwasincorporatedintoacertificateagainstwhich the employer issued an effective notice of intention towithholdpayment.

If, onaproper construction, theadjudicator’sdecision is as to a sumwhichwill116. becomedue in the future,asopposedtoasumalreadydue,thenawithholdingnoticemaybe servedvalidlyproviding the sum awarded has not in the meantime become due.PerShimizu Europe Ltd v LBJ Fabrications Ltd43consideredinSeverability of Adjudicator’s Decisions bySheridanandHelps(2004)20Const.L.J.71.

34 [2009]EWHC2017TCC35 [2000]BLR18736 (2002)83Con.L.R.10937 [2002]BLR47638 [2005]CILL223239 [2003]BLR11840 [2003]BLR3141 [2000]75Con.L.R.71.42 [2002]BLR12543 [2003]BLR381



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Wemovenext to the l117. atestonset-offofadjudicator’sdecisions -HS Works Ltd v Enterprise Managed Services Ltd44-andthedifficultsituationthatariseswhentherearetwoenforceableadjudicationdecisionswhichdecidedifferentthingsbutwhichmaysparkoffeachother.

Thesubcontractorperformedrepair,reinstatementandresurfacingworksforthe118.contractor.Followingcompletionoftheworksadisputearosebetweenthepartiesastothevaluationofthefinalaccountandthelevelofanumberofcontra-charges.Twoadjudicationsfollowed.

Inthefirstadjudicationbroughtbythesubcontractor,theadjudicatordecidedthat119.£1.8mdeductedby thecontractor as contra-charges shouldbeawarded to thesubcontractor.

Inthesecondadjudication,theadjudicatordecidedthatthepropervaluationof120.thesubcontractor’sworkswas£24.81million(lessthevalueofthecontra-chargesof£1.56million),leavingthefinalvaluationofthesubcontractor’sworksas£23.25million.Theeffectofthesecondadjudicationwasthatallorpartofthesumawardedtothesubcontractorinthefirstadjudicationshouldberepaid.

Thecontractorandthesubcontractorbotharguedthatthedecisionwherethey121.had lost was invalid. The applications to enforce those decisions were joinedtogetherbeforeMrJusticeAkenhead.

Thecourthadtoaddresshowthecourtshouldgiveeffecttothetwoadjudication122.decisionsand,inparticular,whetheronecouldbesetoffagainsttheother.

The starting point was that the court should follow the general principle that123.adjudicators’decisionsgenerallyshouldbeenforcedpromptly,unlesstherewerespecialcircumstances.Theexistenceofasubsequentdecisionwasnotgenerallyaspecialcircumstancethatjustifieddepartingfromthegeneralrule(YCMS Limited v Grabiner45).

Mr JusticeAkenhead thenpresented the followingguidance as towhether the124.courtcouldsetoffonedecisionagainstanother:

First,itwasnecessarytodeterminewhetherbothdecisionswerevalid.•

Providedbothdecisionswerevalid,itwasnecessarytoconsiderifbothwere•capableofbeingenforcedorgiveneffectto;ifoneorotherwasnotsocapable,thequestionofset-offdidnotarise.

If itwasclearthatbothdecisionswerecapableofbeingenforced,thecourt•should give effect to themboth, provided that separate proceedings havebeenbroughtbyeachpartytoenforceeachdecision.Thecourthadnoreasontofavouronesideortheotherifeachhadavalidandenforceabledecisioninitsfavour.

Itwasamatterforthecourthoweachdecisionwouldbeenforced.Itmight•bewhollyinappropriatetopermitaset-offofasecond(financial)adjudicator’sdecisionincircumstanceswherethefirstdecisionwaspredicatedonthebasisthattherecouldbenoset-off.

Thecourtalsoconsideredtheapproachthatshouldbetakentowhathasbeen125.called “kitchen sink” adjudications - disputes which are so extensive that theadjudicatororthedefendingpartycouldnotreadilyoreasilydealwiththeminthestandard28-dayperiodofadjudication.

MrJusticeAkenheadwasoftheviewthatthecourtshouldhaveregardto:126.44 [2009]EWHC729(TCC)

45. [2009]EWHC127(TCC)



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whetheranduponwhatbasistheadjudicatorfeltabletoreachhisdecisionin•thetimeavailable;

the opportunities available to the defending party before the start of the•adjudicationtoaddressthesubjectmatteroftheadjudication;and

whetherthedefendingpartywasabletoanddidaddressthematerialprovided•toitandtheadjudicator.

Thesubcontractorarguedthatthecontractorhadfailedtoissueavalidwithholding127.noticeinrespectofthecontra-chargesaswasrequiredbythecontractandsohadnocontractualorlawfulrighttowithholdthesumof£1.8million.

The contractor argued that the adjudicator should have considered themerits128.andquantumofthecontra-chargeswhichithadputforward,asopposedtothe“artificiallynarrowgrounds”ofwhetherawithholdingnoticehadbeenissued,andthat in failing toaddress thecontra-chargesclaim, theadjudicatorhad failed tofollowtherulesofnaturaljustice.

Theadjudicatordecidedthatasavalidwithholdingnoticehadnotbeenissuedin129.timetheeffectwasthatnosumscouldbewithheldfromtheamountduetothesubcontractor.

In reviewing the decision of the adjudicator, the court was satisfied that the130.adjudicator’s decisionwas valid. In reachinghis decision on the subcontractor’sprimarycasethattherewasnoeffectivewithholdingnotice,therewasnoneedfortheadjudicatortoconsiderwhetherthecontra-chargesclaimwasagoodorbadclaim.

Thecontractorhadsoughtadeclarationastothepropervaluationoftheworks131. carriedoutby thesubcontractor.Thesubcontractorarguedthat theadjudicatorhadnojurisdictionbecausetheadjudicatorhadfailedtoactfairlyorapplytherulesofnaturaljusticebycontinuingtoissuehisdecisiondespitethelateprovisionofthecontractor’sexpertwitnessreportandtheextentoftheadjudication(38leverarchfiles,anumberofsmallerfilesandthreecompactdisksofdata).

In reviewing the decision of the adjudicator, the court was satisfied that the132.adjudicator’sdecisionwasvalid.Thecourtnotedthatitwasclearthattheadjudicatordidnotconsiderthatheneededmoretimetoproducehisdecisionalthoughhehad acknowledged that his task had been onerous.There had been no hint orsuggestionthattheadjudicatorthoughtthathecouldnotactfairlyinproducinghisdecision.Theadjudicatorhaddoneathoroughandconscientiousjobandtheadjudicator’sapproachcouldnotbecriticised.

Thedecisionsinthefirstadjudicationandthesecondadjudicationwerebothvalid133. andenforceable.

Thecourttookintoaccountthefactthatbothdecisionsshouldhavebeencomplied134.withwhenthedecisionshadfirstbeen issued.The fact that thepartieshadnotdonesohadleftthecourtinadifficultpositionastohowtodealwithwhathadhappened.

The courthad adiscretion as tohow togive effect to thedecisions in the two135.adjudications,and,onbalance,consideredthatthecourt’sordershouldreflecttheneteffectofthedecisions.

MrJusticeAkenheadtookapragmaticapproachtotheissueonthebasisthat“it136. wouldbepointless,at leastadministratively” for thecontractor tohandover thesumawardedinthefirstadjudication,tobefollowedbythesubcontractorhavingtohandbackallorthebulkofwhathadjustbeenpaidtoitbythecontractor.



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This case provides useful guidance on the principles that the court will adopt137.whenconsideringsimultaneousenforcementofadjudicators’decisions.Thecourtexerciseditsdiscretionpragmaticallyandmadeanordertoreflectthenetpositionoftheparties.

Thecourtalsoconfirmedtheviewssetout in138. CIB Properties v Birse Construction46

and in Dorchester Hotel v Vivid Interiors47thatin“kitchensink”adjudications,itisfortheadjudicatortodecidewhetherornothecanreachadecisionfairlywithinthetimetable. Iftheadjudicator isofthatviewthecourtgenerallywillnot interveneexceptinthemostobviouscase.

46 [2005]1WLR225247 [2009]EWHC70(TCC)



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Summary of the JCT 2009 revisions48 to payment etc.

TheJCT139. 49(morethan70%ofallprojectsintheUKarebuiltunderaJCTcontract)summarisesthechangestothecontractsasfollows:

The principal revisions are the incorporation of sustainability provisions, following the JCT’s consultation, and the provisions building on OGC’s Achieving Excellence Criteria. The opportunity has also been taken to modify aspects of the payment provisions, while awaiting the outcome of the proposed payment legislation.

FurtheraspectwasgivenattheJCT’slauncheventforthe2009revisions,on18May140.2009.Twoparticularchangeswerehighlighted:

Changes to the payment provisions. Applications for interim payment are•nowmadeeverytwomonthsbetweenpracticalcompletionandtheendoftherectificationperiodorissueofthenoticeofcompletionofmakinggood(whicheverislater).(See,forexample,clause4.9ofJCTDB05,Revision22009.)

NewrequirementsforcomplyingwiththeAchievingExcellenceinConstruction•initiative.50 Provisions in line with the Office of Government Commerce’s(OGC)AchievingExcellenceinConstructioninitiativeareincludedinthe2009revisionsbydefault,unlessthepartiesindicateotherwiseintheJCTContractParticulars.(See,forexample,Schedule9totheJCTSBC05,Revision22009.)

TheprincipalamendmentstotheJCTDB(DesignandBuild)formarecontainedin141.Part2ofSchedule2(SupplementalProvisions)andinclude:

AmechanismfortheEmployertoinstructtheaccelerationoftheWorkswith•theagreementoftheContractor.

An obligation on the parties to work in a co-operative and collaborative•manner,ingoodfaithandinthespiritoftrustandrespect.

Anextensionofthehealthandsafetyprovisionsalreadyincludedinthebody•oftheJCTform.

Amechanism for the Contractor to propose value engineering changes to•reducethecostoftheWorks,theirassociatedlife-cyclecost,andtoimprovegenerallytheenvironmentalperformanceoftheWorks.

A mechanism for the incorporation by the Employer of key indicators to•measuretheContractor’sperformance.

Anobligationfortheearlynotificationofdisputesandforseniorexecutivesto•engageingoodfaithnegotiationstoresolvesuchdisputes.

Unfortunately, while the JCT guides to the individual contracts (where these142.are published) will identify the clauses that have changed, no list of individualamendmentswill,itseems,bepublished.Userswho,forexample,amendoradviseonthedetailofJCTclauseswillberequiredtocarryoutaline-by-lineassessmentofthechanges.

AccordingtoJCT,the2009revisionsprovidetheopportunitytoadaptcertainaspects143.of the payment provisions, whilst awaiting the outcome of the proposed newpaymentlegislationreferredtoabovetorepealtheHousingGrants,ConstructionandRegenerationAct.

ItakewithapinchofsaltthecontentionthechangesembraceOGC’sAchieving144.Excellence criteria, so that JCT can become the contracts of choice acrossgovernmentdepartments, as Ihave toadmit toacertaincynicism in theOGC’s

48. Note,too,thatthechangesmeanterminationforcontractordefaulthasincreasednoticeperiodfrom14daysto21daysisnowrequiredinthecaseofContractordefaultandthemediationprovisions-eachpartytogive“seriousconsideration”toanyrequesttoreferamattertomediation.[checkforsense]

49. Sweet&MaxwellThomsonReuters.

50. ItsoundsunctuousbuttheaimthroughtheAchievingExcellenceinConstruc-tioninitiativeisforcentralgovern-mentdepartmentsandpublicsectororganisationstocommittomaximis-ing,bycontinuousimprovement,theefficiency,effectivenessandvalueformoneyoftheirprocurementofnewworks,maintenanceandrefurbishment.TheNationalAuditOffice(NAO)report,ImprovingPublicServicesThroughBetterConstruction,publishedinMarch2005,highlightedthatan£800millionoverspendonconstructionprojectshadbeenavoidedthroughtheadoptionoftheAECbestpracticeprinciples.

Thesamereportestimatesthatfurthervaluegainsofupto£2.6billioninannualconstructionexpenditurearepossibleifgoodpracticewasappliedacrossallthepublicsector.



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abilitytojudgewhatisbestgiventheirringingendorsementoftheNEConabasislatershowntobebasedonnotknowingthealternatives!

FollowingtheformatfirstintroducedforRevision1,JCThavecontinuedthepolicy145.of listing the changes in theContractGuide rather than the contract itself.Theguidealsonow includes,atAppendixCa“userchecklist”with tickboxesof“keyinformation”thatwillassistcompletionoftheArticlesofAgreement.ItisnotclearwhetherJCTintendsthataseparatechecklist–andthereforeguide–isneededforeachnewproject.

Therewill be some amendmentswhich relate to specific contracts, and not all146.revisionsapplytoalldocuments,butthebroadchangesareasfollows:

Conditions:

Changestothenoticeprovisionsincludingperiodrequiredbeforeterminating•increasednoticeperiodfrom14daysto21daysisnowrequiredinthecaseofcontractordefault

Acknowledgementoftheuseofaframeworkagreement•

Requirementsforcollaborativeworking•

Provisionsforestablishingandmonitoringofcontractor’sperformanceagainst•indicatorsidentifiedinthecontractdocuments.

Payment:

Anewprovisionforinterimpaymentsafterpracticalcompletionatintervalsof•twomonths

Clarificationofthedatesfromwhichinterestiscalculatedwherepaymentis•made late

Theoptionofaretentionbondinlieuofretention,togetherwithsampletext•

TheoptionofanAccelerationQuotationtobesubmittedbythecontractor.•

Disputeresolution:

Partiesmust“give serious consideration” to any request to refer disputes to•mediation

Meetingsbetweenseniorexecutivesmaybearrangedtonegotiateinrespect•ofanydisputes

Encouragementtoagreeacommunicationsprotocolattheoutset.•

Sustainability:

Thecontractorisencouragedtoproposechangestodesignsorspecifications•orprogrammeswhichmaybenefittheemployerintermsofcostofworksorlifecyclecost

The contractor is encouraged to suggest economically viable amendments•to the works which may result in an improvement in environmentalperformance

Partiesshallworkwitheachotherinacollaborativeandcooperativemanner.•



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Comment

ThedecisiontowithdrawJCTRevision1(orotherearlierversions)frombookshops147.andnottopublishstand-alonesheetsofamendmentshascomeinforsomestick,particularlyinthecurrenteconomicclimate.

Giventheexpectedchangestothestatutorylandscapeforconstructionprojects,148.the decision to amend the JCT’s payment clauses may also be questioned bysomeforjumpingthegun.However,giventhenatureofstatutoryandvoluntaryregulationaffectingthelong-termsustainabilityofconstructionprojects,anystepsthatcanhelpunifysustainabilityproceduresfortheindustrycanonlybeagoodthing.

Itisuncertainwhetherthe2009revisionswillsecuretheJCTagainstthemounting149.popularityofotherstandardformsofcontract,suchastheNEC3suiteofcontracts,butlet’snotlosesightofthefactthatJCTstillmopsthefloorwithNECintermsofvolumeofuseintheUK.The2009revisionsdemonstrateacontinuingcommitmenttomeetingthechangingneedsoftheconstructionindustry(particularlyinrelationtoenvironmentalsustainability).



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Common legal myths with JCT on “snagging”

“Snagging”

Buildingworks,likethearrowofEleaticparadox,haveapropensitytogetcloserand150.closertocompletionbutneverquitetoarrive.Thebuildingindustryaccordinglyhasevolvedtheconceptofpracticalcompletion.51Thetermiswidelyunderstoodintheindustryasmeaningthestageatwhichtheworksarereasonablyreadyfortheirintendeduse,notwithstandingthattheremaybeoutstanding“snagging”items.

Thereisafairlywidespreadmisconceptionthatthedefectsliabilityperiod(nowthe151.defects“rectificationperiod”sinceJCT05)isintendedasatimewhenthecontractorattendstosnaggingitemsoutstandingasatthedateofpracticalcompletionandobtainsreleaseofthefinalmoietyofretentionhavingdoneso.Infact,theschemeoftheJCTcontractisthatthereshouldnotbeanyoutstandingitemsatpracticalcompletion,andthedefects liabilityperiod/ rectificationperiod is theperiod inwhichtheparties“waitandsee”astowhatdefectsemerge.Ifwestophere,thatisallyoureallyneedtoknowinmyopinion!

TheapproachJCThastakenhistoricallyisthatthedefectsliabilityperiod/defects152.rectification is akin to a guarantee period and the contractor usually has theobligation, and indeed the right, to remedy defects appearingwithin this time.Thecontractorisusuallyrequiredtoremedythesedefectsfreeofchargebutthepracticeistothebenefitofbothpartiessincethecontractorwouldotherwisebeliableforthegreatercostofanothercontractorremedyingthedefects.52

Theterm“snagging”ismorecommonlyusedtodescribeunsatisfactoryworkorsmall153.itemsofworkstilltobecompletedwhicharediscussed/discoveredduringfinalsiteinspections. Ithasgivenbirthtoasmall industryofcontractorsthatspecialiseinmakinggood,particularlytotheorderofnationalhousebuilders!SnagginglistsarealsotermedSchedulesofOutstandingWorks.

As to definition, Peter E.D. Love andHeng Li154. 53 in Construction Management and Economics describe snagging as“an act of rework; theunnecessary effort of re-doingaprocessoractivitythatwasincorrectlyimplementedthefirsttime”.Inhouseconstructionitistheprocessbywhichanitemismadetoconformtotheoriginalrequirementbycompletionorcorrection.”Theygoontorefertoa“SnaggingSurvey”asadetailedinspectionreportofanewlycompletedbuildingprovidingadefectassessmentfocusedonindustry-establishedfinishingstandards.

Architects’dutiestoinspecttheworksandsnagging

Inthefollowingcase,thejudgeobservedthatthearchitect’s inspectionrolehas155.beenthesubjectofsurprisinglyfewcasesdespitethe“snaggingindustry”.Thiscaseisthereforeofparticularinterest.

Ian McGlinn v Waltham Contractors Limited and others156. 54

Theemployerwasamulti-millionairewhoengagedacontractorandprofessionalteamtodesignandconstructahouseinJersey.Preferringtokeepthings“informalandfluid”,noformalcontractwaseverenteredintobytheemployerwitheitherthecontractororthearchitect.Delaysoccurredintheconstructionofthehouseandtheconstructioncostsoaredovertheoriginalbudget.Thecontractorwalkedoffsiteandsubsequentlywentintoadministration.Theemployerchosetodemolishthepropertyinviewoftheallegeddefectsandthenbroughtproceedingsagainstvariousparties,includingthearchitect.

Thetermsofengagementofthearchitectand,inparticular,thescopeofservices157.which the architect had agreed to provide, were fiercely disputed. Whilst theemployerandarchitectagreedthattheengagementofthearchitectincorporated

51 UnderJCT05,clause2.30,whenintheopinionoftheArchitect/ContractAdministratorpracticalcompletionoftheWorksoraSectionisachievedandtheContractorhascompliedsufficientlywithclauses2.40and3.25.3,then:

1inthecaseoftheWorks,the•Architect/ContractAdministratorshallforthwithissueacertificatetothateffect(“thePracticalComple-tionCertificate”);2inthecaseofaSection,heshall•forthwithissueacertificateofprac-ticalcompletionofthatSection(a“SectionCompletionCertificate”);

andpracticalcompletionoftheWorksortheSectionshallbedeemedforallthepurposesofthisContracttohavetakenplaceonthedatestatedinthatcertificate.

52 ContrastNEC/EECwherethedefectscorrectionperiodwiththeECCisusuallyashortperiodofbetweentwotofourweeks.ThismeansthatwhenadefectisnotifiedtotheContractorheisexpectedtocorrectthedefectwithinthestatedperiod.Whilstitisalsotruethatthedefectsperiodisalsogiven(usuallybetweensixandeighteenmonths)thisdoesnotallowtheContractorsimplytoputrightthedefectsattheendofthatperiodbutisratheralongstopperiodwithinwhichdefectsaretobenotifiedandcorrectedwithintheshorterperiodfordefectscorrectionstartingfromthedateofnotification.Thishasthepoten-tialfortheContractortobeinbreachofcontractforfailuretocorrectthedefectwithinthesatedperiodeventhoughhehasbeenunabletoobtainaccesstothesitetocorrectthedefect.

53 ConstructionManagementandEco-nomics,1466-433X,Volume18,Issue4,2000,Pages479-490.

54 [2007]EWHC149(TCC)



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the“Architect’sAppointment”documentpublishedbytheRIBAin1982(sometimesknownastheBlueBook),theextenttowhichthisdocumentwasincorporatedwasdisputed.

Oneofthebreachesofcontractclaimedagainstthearchitectrelatedtoitsfailureto158.inspecttheworks.Underthe“Architect’sAppointment”document,thearchitect’sobligationwastovisitthesiteasappropriatetoinspectgenerallytheprogressandqualityofthework.

Before considering whether the architect had complied with its contractual159.obligation to carry out inspections to identify non-compliant work, the judgereviewed theauthoritiesandsetout the following legalprinciplesapplicable tothe “inspecting professional” (for convenience, I refer below to the “inspectingprofessional”as“thearchitect”):

Legalprinciplesinrelationtoanarchitect’sdutytoinspect

Thelegalprinciplesderivedbythejudgefromtheauthoritieswere:160.

Thefrequencyanddurationofinspectionsshouldbetailoredtothenatureof•theworksgoingonatthesitefromtimetotime.

Itwasnotenoughforthearchitecttocarryoutinspectionsonthedateofeach•sitemeeting(whetherfortnightlyormonthly)butnototherwise.Thedatesofsuchsitemeetingsmighthavebeenarrangedsometimeinadvance,withoutanyreferencetotheparticularelementsoftheworksbeingprogressedonsiteatthetime.Moreover,ifthecontractorknewthatinspectionswereconfinedtothedatesofthesitemeetings,itwouldknowthat,atallothertimes,itsworkswouldbesafefrominspection.

Althoughthearchitectcouldinstructthecontractornottocoverupimportant•elements/stages of theworks until they had been inspected, this situationwasunlikelytoariseinmostcases.Thiswasbecauseanarchitectcarryingoutinspectionstailoredtothenatureoftheworksproceedingonsitewouldhavetimeditsinspectionssoastoavoidsuchinspectionsaffectingtheprogressoftheworks.

Inanyclaimagainstanarchitect foranalleged failureby it tocarryout the•properinspections,themerefactthatdefectiveworkhadbeencarriedoutandcoveredupbetweeninspectionswouldnotautomaticallygiveanarchitectadefence.

Matterssuchasthearchitect’sreasonablecontemplationofwhatwasbeing•carriedoutatthesiteatthetime,theimportanceoftheelementofworkinquestion,andthearchitect’sconfidenceinthecontractor’soverallcompetencewoulddeterminewhetherornotsuchdefencewouldapply.

If an elementofworkwas importantbecause itwasgoing tobe repeated•throughout one significant part of the building, then the architect shouldensurethatitsawthatelementoftheworksintheearlycourseofconstruction/assembly,soastoformaviewastothecontractor’sabilitytocarryoutthatparticulartask.

Reasonableexaminationoftheworksdidnotrequirethearchitecttogointo•everymatterindetail:itwasalmostinevitablethatsomedefectswouldescapeitsnotice.

Itwasmisconceived toassume that,because theemployerhadaclaim for•bad workmanship against the contractor, the architect must have beennegligentorinbreachofcontractformissingthedefectduringconstruction.



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Thearchitectdidnotguaranteethatitsinspectionwouldrevealorpreventalldefectivework.

Weremonthlyinspections,onthedaysofsitevisits,adequate?

During thecriticalperiodof construction -of themain structureof thehouse -161. the inspectionswerecarriedoutmonthly,on the samedayas themonthly sitemeeting,andnototherwise.Therewasnoevidencetosuggestthattheinspectionswerearrangedatatimethatwassuitablefortheparticularprogressoftheworkson site.

Thejudgeheldthatsuchmonthlyvisits,telegraphedinadvance,weretoorigidand162.tooinflexible.Thearchitecthadnotperformeditsinspectionfunctionadequately.The judgealsocriticisedthecompleteabsenceofanyrecordsgeneratedbythearchitectofthedefectsseenduringtheinspectionandtheremedialactionrequiredbythearchitect.

Isanarchitectentitledtowaituntilhandoverbeforeundertakingadetailed inspectionandproducingasnagginglist?

This issuewasrelevant for the followingreason.Defectsobservedneededtobe163. accountedfor inthe interimpaymentcertificates. Ifdefectshadnot (butshouldhave)beenaccountedforininterimcertificates,thenif(ashere)theconstructioncontractcametoaprematureend,itwouldbedifficultforthearchitecttoavoidresponsibilityforanyconsequentoverpaymentwhere(ashere)thiscouldnotberecoveredfromthecontractor.

Thejudge’sviewwasthattheanswertothequestion-astowhetheranarchitectwas164.entitledtowaituntilthecontractor’shandoverofthebuildingbeforeundertakingacarefulinspectionandproducingadetailedsnagginglistofincomplete/defectivework-dependeduponthenatureofthedefectinquestion.

Twodifferentcategoriesofdefects

The judgedescribed twodifferentcategoriesofdefectswhichmaybe revealed165.duringaninspectionpriortohandover:

Defectswhichmustsensiblyberemediedatthetime,ratherthanattheend•oftheproject.Ifthearchitectidentifiedsuchdefectivework,thenthearchitectwasobligedtopointthisouttothecontractorandtorequirethedefectiveworktoberectified.

Defects in work that was still in the process of being carried out (referred•to as“temporarydisconformities”). If the architect identified suchdefects, itwasnotobligedtopointtheseout.Inotherwords,thearchitectshouldonlycondemnadefect:iftheworkwasnotyetfinished,itcouldnotfairlybesaidtobedefective.

Todeterminewhetherthearchitectwasliableforanyoverpaymenttothecontractor166. resultingfrompaymentfordefectivework(whichitwasimpossibletorecoverfromthecontractor,whowasinadministration),thejudgeanalysedthedefectsallegedanddecidedintowhichofthesetwocategoriesofdefectseachallegeddefectfell.

Howshouldtheemployer’slossesbequantified?

Wastheemployerentitledtorecoverdamagesbyreferenceto:167.

thediminutioninvalueoftheproperty;•

thecostsofrepair;or•



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thecostofdemolitionandrebuildingofthebuilding?•

Thejudgeacceptedthatthiswasunquestionablyacasewherethecorrectmeasure168.oflosswasreinstatement:thecriticalquestionwaswhetherthereinstatementcostsshouldbecalculatedbyreferencetothecostsofdemolitionandrebuilding(theemployer’scase);orthelowercostsofreinstatingtheindividualdefectsforwhichthe architectwas found liable (togetherwith appropriate additions for on-costsandthelike(thearchitect’scase).

Theemployer’sargument:the“GreatOrmondStreetprinciple”

Theemployerarguedthat:169.

thedecisiontodemolishthepropertywastakenonexpertadvice;•

itwasnotsuggestedthatsuchadvicewasnegligent;and•

theemployerwasthereforeentitledtothecosts,oraproportionofthecosts•of demolition and rebuilding from the architect (and other defendants) inaccordancewiththe“GreatOrmondStreetprinciple”.

The“GreatOrmondStreetprinciple”camefromapassagein170. The Board of Governors of the Hospitals for Sick Children & Anor v McLaughlin & Harvey plc and Ors,55inwhichJudgeNeweysaid:

Aclaimantwhocarriesouteitherrepairorreinstatementofhispropertymust•actreasonably.

Aclaimantcanonlyrecoverasdamagesthecostwhichthedefendantought•reasonably tohave foreseen thathewould incur.Thedefendantwouldnothaveforeseenunreasonableexpenditure.

Reasonablecostsdonot,however,meantheminimumamountwhich,with•hindsight,itcouldbeheldwouldhavesufficed.

Whenthenatureoftherepairsissuchthattheclaimantcanonlymakethem•withtheassistanceofexpertadvicethedefendantshouldhaveforeseenthathewouldtakesuchadviceandbeinfluencedbyit.

DidtheGreatOrmondStreetprincipleapplyinthiscase?

In the 171. Great Ormond Street case,engineer’smodifications to thepilingdesignofthenewwingofthehospitalwerenegligentand,asaresult, thefoundationsasconstructedwere inadequate.Remedialworkswererequired: theonly issuewaswhethertheengineercouldcriticisetheparticularremedialschemethathadbeencarriedout.

Thecircumstancesinthe172. McGlinncaseweresignificantlydifferent:

Thepropertywasstructurallysound-thedefectsessentiallyrelatedtoaesthetic•matters.

The expert advice in relation to demolition was dependent upon the•comparative costs of (i) repair (since the building was structurally sound),and (ii)demolitionandrebuilding.Althoughtheexpertadvicewasthat thequantumof suchfigureswas reasonablycomparable, therewasa clear riskthatthecostofdemolishingandrebuilding(which involvedsomuchmorephysicalwork)mightincrease.

Theexpertadvice(onwhichtheemployersoughttorely)inthiscasewasnot•onlywrong(sincethedemolition/rebuildingcostturnedouttobefargreater 55. [1987]19ConLR25



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thantheagreedrepaircost).Itwasalsobasedonariskassumption(ignoringthe risk that demolition/rebuilding costs might increase) that was (in thejudge’swords)opentoconsiderabledebate.

Theemployerhada very realdifficulty. Essentially,he reliedupon/assumed•complete success on, a large number of contentious defects, in claimsagainst four separatedefendants. If one significant itemwas removed fromtheequation(e.g.becauseitwasnotadefectatall),wheredidthatleavetheexpert’sadvicetodemolishorrebuild?Itmightnotmaketheadvicenegligent,butitdidfundamentallyweakenitsevidentialvalue.

Thejudge’sconclusion

Thejudgefoundthat,onthefactsofthiscase,theappropriatemeasureofdamages173.tobeawardedagainstthearchitectwasthe(largelyagreed)costoftherepairworknecessitatedbytheindividualdefectsforwhichthearchitectwasliable.

Comments

Asthejudgeobserved,toknockdownacompletedbuildingwherethemajorityof174.theallegeddefectswereaestheticonlywas,onanyview,anextremecourse.Thesocalled“GreatOrmondStreetprinciple”wouldnotapply in thevastlydifferentcircumstancesofthis-somewhatbizarre-case.Overall,someverysoundjudicialguidanceonthesubjectsofinspection,snagging,defectsanddamages,whichwecanalllearnfrom.



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Sectionalisation and time at large

It is not uncommon for a project to have two or more completion dates for175.different parts of the projectworks, i.e. sectional completions, rather than haveonecompletiondateforanentireproject.InJCT05,theContractParticularsrefertoSectionalCompletiondatesand,iftheseareinsertedwithintheParticulars,theContractwilloperatetogiveeffecttotheParties’ intentions.TheJCT05includesprovisions thatwerepreviously separate supplements to themaincontract.Theappendixattheendoftheoldformsisnowatthefront,sothatalloftheproject’sspecificinformationisclearlyplacedatthebeginningofthecontract.

Iftheclienthasfailedtomakethesectionalcompletionrequirementsanexpress176.term of the contract, instead only listing them in the bill of quantities or pre-awardminutes,with justonemaincompletiondate in thecontract, difficultieswill inevitablyarisepost-contract.56 Inthis instance, it isthedate inthecontractparticulars that isbinding - something thathas thepotential to lead toamajorbreakdowninclient/contractorrelationships.

The parties may want sectionalisation because a project consists of a number177.ofdiscretebuildings andanemployerwishes to takepossessionof eachof thebuildings ina setor logical sequenceas theyarecompleted.Or, if anemployerwishestotakeearlypossessionofthedifferentfloorsofabuildinginordertodoitsownfit-outorcomms.workswhilethecontractorcontinueswiththeremainderoftheworks.Whilethismaysoundlikeaperfectlylogicalarrangementandevenreciprocally beneficial, introducing sectional completions profoundly affects aprojectinseveralways.

Itisimportantnottolosesightofthefactthatsectionalcompletionwithmultiple178.completiondatesforthedifferentpartsofworkbeingundertakenmustbemadeexpressascontractmachineryincontrasttoamoretraditionalset-upwherethereis a single completion date for an entire development. A sectional completionclause isvery importantas it is inplaceforthebenefitoftheemployer.Withoutit, the contractormaintains the right topossession tooccupy theentire site foras longasthere iscontractedworkthat requirescompletion.Thisposesamajorfinancialrisktotheemployer.Withouttheimplementationofsectionalcompletiononamajormixed-usedevelopment, forexample, theclientwouldbeunable totakepossessionofanyofthecompletedretail,andbegintorecouphisinvestment,untilalloftheworksreachedpracticalcompletion.

As a result, sectional issues require special deliberationwhen a project is being179.planned and in certain circumstances can cause complications for contractors,should they need to apply for an EOT. The special considerations include thefollowing:

Firstly,sectionalcompletionsmeanthatassoonasasectionalcompletiondateis180.achievedandapartoftheworkstakenover,thecontractorwillbesharingthesitewitheithertheemployer,theemployer’scontractors,theoccupier,theoccupier’scontractorsorallofthem.

Thiscouldmean thataccessandcompounds/laydownareaswillbe sharedand181.checkswillneedtobemadetoensurethattheyareadequatefortherequirementsafterthesectionalcompletionhasbeenachieved.Forexample,aretheliftsorhoistscapableofcarryingtheadditionalpersonnel,materialsgoinginandwastematerialgoingout?Willtheyhavetoworkoverandabovetheusualsiteworkinghours?

Secondly, thenature of the sectional completionhas tobe established.Does it182.meanthatacontractorisexpectedtohandoverasectionofworksfortheexclusiveuseoftheemployer,orwillthecontractorhavetoworkalongsideothers?Inwhich

56. GleesonLtdvLondonBoroughofHil-lingdon,(1970)215E.G.165,JCTClauses2.33to2.37concerningPartialposses-sionbyEmployerunderJCT05providefortheEmployerwiththeconsentoftheContractortotakepossessionofpartorpartsoftheWorksbeforetheWorksarecompleted,andfortheap-plicationtoeachpartofprovisionsforPracticalCompletion,defects,insuranceandliquidateddamagesanalogoustothosewhichapplytothewhole.Clauses2.33to2.37shouldbereadwithClauses2.30and2.38to2.39,butitiswellset-tledthatthisclausedoesnotassuchprovideforsectionalcompletion.



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caseresponsibilityforkeepingthesectionclean,forsecurity,fireriskandinsuranceneedstobeestablishedforthesectionthathasbeenhandedover.

Thirdly,whileitiseasyenoughtoidentifyasectionofworksthatcanbecompleted183.in advance of another section, contractors and employers need to ensure thatthepartoftheprojectthatmakesupthesectionalcompletiondatescanactuallybehandedover,i.e.thattherearenoreliances,betheyservices,linkstructuresorfunctionaldependencies.

Thereasonforthis isthatwhentenderdocumentsareassembleditmaynotbe184.apparent toanemployerand its teamthat itmaynotbepossible tohandoverasectionofworksexactlyasanemployerrequires it.Forexample,anarchetypalsituationthatcanoccurisafloorofabuildingintendedtobepartofasectionalcompletionandhandedovertotheemployerbuttherehappenstobeatransformerorUPSthroughitfeedingotherfloors.Thismeansthatthecontractorwillstillneedtogainaccess to thefloor thathasbeenhandedoverandcarryout itswork.Afurthersituationisthatitmightbefoundthatasectionofworkstobehandedoverisfedwithservicesfromanothersectionthatisnotpartofthesectiontobehandedover.Therefore,employersneedtomakeitclearwhetherandwhatliveservicesarerequiredforeachsectionalcompletion.Similarly,contractorshavetoensurethattheirworksareprogrammedtoprovideliveservicesiftheyarerequiredtocompleteasection,ormakeitclearthattheywillnotorcannotbemadeavailable.Nopointhanding over a control tower on an airportwithout the telemetry connectionsmadetothatcontrolroom!

Inmostcases,thesesituationscanbemanagedwithsomepre-planningandthe185.sectional completion can be achieved without hindering either the contractoror the employer. However, it requires analysis during the tender stage by thecontractortoidentifythesesituationssothatanyproblemscanbemanagedout.Thecontractorshould thendescribe in itsmethodstatementhowthesectionalcompletionwillbehandedoverand includeamarked-updrawingshowingtheboundariesofthesection,accessandegressroutes,anylimitationsandanyotherinformationthatisrelevant.

In terms of planning, sectional completions also have a profound effect on a186.programme.Eachsectionalcompletionactuallycreatesaseparatecriticalpathforeachsection,therebyreducingthebufferoffloatthatmightotherwiseexistiftherewereasinglecompletiondate.Thisreducesthecapabilityofaprogrammetoabsorbdelayswhichaffectsbothacontractorandanemployer.Foracontractor,ifitisindelayintheprocessofcompletingworkthatformspartofasectionalcompletionitonlyhastheremainderofthedurationallowedfortheparticularsectiontomakegoodthedelay,soopportunity is lost.Foranemployer itmeansthat if itcausesa delay the contractor will probably apply for an EOT to the affected sectionalcompletiondate.If,however,therewasonlyonecompletiondateattheendoftheworksacontractorhasamuchgreaterscopeandthereforechanceofovercomingadelaybymitigationandtheremaybenodelayarising.Sosectionalisationisusuallypricedaccordinglybycontractors.

Sectional completions have the positive effect of forcing contractors to focus187.onprogressive completion andhandover of theproject, rather than endeavourtohandover theentireprojectononeday,but sometimes theirpreoccupationbecomesdealingwitheach section in isolationat theexpenseof later sections.Further, by having sectional completions a formal structure is set upwhere anemployertakespossessionandresponsibilityofcompletedsectionsofworkratherthanletacontractortakeresponsibilityfortheentireworksuntilthelastsectioniscompleted.Assuming,thatis,theemployerdoesnotwanttotakepartialpossessionofpartoftheworksasitiscompleted.



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Sectionalcompletionsbecomecontentiouswhen there isanemployerdelay to188.asectionalcompletionandithastobedecidedwhatthe impactofthedelay isonother sectionalcompletions. If there isaclearphysical relationship fromonesectionalcompletiondatetoasubsequentsectionalcompletiondatethereshouldbe little debate (in theory!) that both have beendelayed. If there is not a clearphysical relationshipbetween twocompletiondates thingsare lessclearcut. Insuchcircumstancesanemployermayfeelthatif itdelaysasectionalcompletiondateitshouldhavenoimpactonsubsequentsectionalcompletiondates.

Ontheotherhand,acontractorwillprobablyfeelthatwhilethereisnophysical189.relationshipbetweentwosectionalcompletionsthereisaresourcelinkbetweenthem,whether it is shownon a programmeor not, and to delay one sectionalcompletionwilldelayresourcesthatweretocarryoutworksforthesubsequentsectionalcompletionswhichwillalsobedelayed.

Thereisnoeasywayoutofthisandinthesecircumstancesitisworthanemployer190.and contractor agreeing how EOT issueswill be dealtwith before they go intocontracttogether.Areasonableemployershouldacceptthatacontractorwouldfinditdifficulttohandovertwosectionsatthesametime,andanapproachthatcanbe adopted is to have an agreement that a contractor can absorb say twoweeksofemployerdelaybeforeitimpactsonsubsequentsectionalcompletions.

Sowhatcancontractorsdotoprotectthemselves?

Priortosubmittingaprice,acontractormustensurethattheproposedsectionsare191.clearlydefinedandthelogicbehindthesectionalpossessionandcompletiondatesisviableinrelationtotheprogrammefortheworks.Fullconsiderationmustbegiventotheeffectofadelaytoonesectiononthecommencementandcompletionofothersections.Adequateallowanceswithinthetenderfortherequirementofsuchinterfacesarethereforecritical.

Areanyotherissueslikely?

Probably the biggest consideration for the client will be the effect of delay in192.completion of each section when estimating liquidated damages. A provisionfor liquidateddamageswillbeenforceable if theamountfixedisagenuinepre-estimateofthelosslikelytoarisefromtheanticipatedbreach,judgedatthetimethecontractisenteredinto.Butwhiletheclientdoesn’tneedtoproveactuallosses,liquidateddamagesarenotenforceable ifdeemedapenalty.Twocases,Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd57 and Philips Hong Kong Ltd v The Attorney General of Hong Kong,58 providesomeguidelinesfordistinguishingbetween liquidateddamagesandapenalty. Inshort, it isapenalty if thesumis“extravagantorunconscionable inamount incomparisonwith thegreatest losswhichcouldconceivablybeprovedtohavefollowedfromthebreach”.

Insuchcircumstances,theliquidateddamagesprovisionshouldconfirmhowthe193.sumspayablefordelayareapportionedbetweenthedifferentstagesofwork.Afailuretocorrectlydosocanbefataltoanyclaimforliquidateddamages.

Oneofmycases,194. Taylor Woodrow Holdings Limited and George Wimpey (Southern) Limited v Barnes & Elliott Limited,59 illustrates the importance,when incorporatingprovisions for Sectional Completion, of defining theWorkswithin each Section.Thiscaserelatedtoanappealundersection69(1)oftheArbitrationAct1996fromapartialawardofEricMouzer.Onthe factsof thecase, the liquidateddamagesprovisionsofamodifiedJCTcontractwerevoid foruncertainty. Thedateuponwhichparticularsectionsoftheworkweretobecompletedwasneitherdefinednorascertainable,norcouldanysectionalworkbevaluedsuchthattimewasatlarge.TheContracttooktheformoftheJCTStandardFormofBuildingContractwithContractorsDesign (1998edition), incorporatingSectionalCompletion.TheWorksconvertingtheformerLongGrovehospitaltoresidentialunitsweredivided

57. (1915)AC7958. (1993)61BLR4159. [2004]EWHC3319(TCC)



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intosixSections.Thecontractualprovisionsthatwererelevanttothepreliminaryissuestobedeterminedwere:

“TheConditionsofContract

2.1 The contractor shall, subject to the conditions, carry out and completeby sections the works referred to in the Employers’ Requirements, thecontractor’sproposals(towhichthecontractsumanalysisisannexed),thearticlesofagreement,theseconditionsandtheappendicesinaccordancewiththeaforementioneddocuments.”

Intheamendedconditionstherepurportedtobeadefinitionof“section”.Itread:195.“SectionOneofthesectionsintowhichtheworkshavebeendividedforphasedcompletion as identified in the Employers’ Requirements and/or contractor’sproposals.”

Clause210oftheEmployers’Requirementswasentitled“CompletioninSectionsor196.Parts”.Itwasdividedintothreebulletpoints:

“wheretheemployeristotakepossessionofanysectionorpartoftheworks,•and such section or part will after its completion depend for its adequatefunctioningonworklocatedelsewhereonthesite,completesuchotherworksintimetopermitsuchpossessiontotakeplace;

duringtheexecutionoftheremainderoftheworks,ensurethatthecompleted•sections or parts of theworks have continuous and adequate provision ofservices,fireprecautions,meansofescapeandsafeaccess;

asectionoftheworkswillnotbeacceptedforpracticalcompletionunlessthe•appropriatenumberofparkingspaces,garages,binstores,footpathsandsafepedestrianandvehicularaccessforpotentialpurchasersandownershavealsobeencompleted.”

HHJudgeDavidWilcoxaffirmedtheArbitrator’sanalysisinthatclause17.1.4,which197.governsthecomputationoftherelieffromLADsonaccountofpartialpossession,was operable only if a valuation could be placed on the sectional works. TheContract,however,failedtoprovideanymeansofascertainingwhatwascontainedinanySectionandtherewasnocertaintyastowhatworkscomprisedeachContractSection.HethereforeconcludedthatitwasnotpossibletovalueanysectionalworksandthereforetheproportionalreliefagainstLADscontemplatedwasincapableofbeingcalculated.Developers should takeheed,and if they require theworks tobecompletedinSections,theymustensurethatitispossibletodeterminewhatworksareinwhichSection,includingroadsandcommonareas.

Sectional completion and time at large

Sowesee it isnot thatuncommon for theparties tomakeacompletehorlicks198.oftheirsectionssothatonedoesnotevenknowwhatwork is inasection,andoccasionallytheremaybedoubtoverthesectionalvaluesandLADssuchastogiveriseto inoperableLADmachineryandtimeat large.However, thecourtsusuallystrivetomakecontractswork.

In199. Liberty Mercian Limited v Dean & Dyball Construction Limited60 the issuewastheeffectivenessofsectionalcompletionschedules thatprovided for thesequentialconstructionofworksections.

Aratherlooselywordedcontractprovidedforfivesectionalcompletionphases.It200.alsoprovidedforliquidateddamagesatarateof£12,000aweekfordelay.LibertyhadhiredDean&DyballtobuildfourretailunitsinAberystwyth.Thecontractorgotintodelaybutchallengedthedeductionofliquidateddamages.60. [2009]CILL2648



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TheclaimantLibertysoughtdeclarationsastotheproperinterpretationofaJCT98201.buildingcontract intowhichithadenteredwiththedefendantDyball.Attachedtothebuildingcontractwasadocumentprovidingforsectionalcompletion.Theworkwasdividedintofivesections,eachofwhichwasgivenadateofcompletion.Section1wasdelayedbyaperiodofeightweeks,soDyballsoughtanextensionoftime.Libertygrantedanextensionoffourweeksandindicatedthattherewas,therefore,afour-weekperiodofculpabledelayattributabletoDyball.Liquidateddamagesweredeductedinconsequence.Adisputethenaroseasaresultoftheconsequences of the delay to sections 2 to 5. An extension of fourweekswasgrantedinrelationtoeachofthosesectionsonthebasisthatDyballwasentitledtoanextensionoftimecommensuratewiththeperiodofdelayforwhichitwasnot responsible.

However, the four-weekculpabledelayon section1wasnot the subjectof any202.extensionoftimeonsections2to5.Dyballmaintainedthatitwasentitledtoanextensionof timeof eightweeks in respect of those sections, regardless of thecircumstancesinwhichthatdelayaroseundersection1.DyballwrotetoLibertyseekingtorefertoadjudicationtheissuesonthecontract.Dyballmaintainedthat(i) the liquidateddamagesconstitutedapenaltybecauseDyballwas repeatedlypenalisedforthesamedelaybythedeductionofliquidateddamagesinrespectofeachsection;(ii)thesectionalcompletionschedulewastobedisregardedbecauseitfailedtoidentifythedate“for”completioninrespectofeachsectionandinsteadreferredtothedate“of”completion,whichwasnotatermdefinedinthecontract;(iii)sincethedateofpossessionforeachofsections2to5wasdependentuponpracticalcompletionofaprecedingsection,Dyballwasentitledtoafullextensionoftime.

HELD:(1)Itwasplainfromtheagreement,andfromthecontractualarrangements203.asawhole,thatbothsideswouldhavebeenawarethattheculpabledelayoffourweeksonsection1wouldautomaticallymeanthatworkonsections2to5wouldstartfourweekslate.Thecontractdidnotsayinexpresstermsthataculpabledelayundersection1wouldgiverisetoaculpabledelay,andthereforethedeductionofliquidateddamages,onsections2to5.

However,when considering the contract as awhole, thatwaswhat theparties204.intended to achieve. That was the only sensible interpretation of the sectionalcompletion arrangement, and the only interpretation which gave effect to theparties’ clear intention. Such a result could not be regarded as unfair. On thecontrary,ifacontractorwasinculpabledelayforfourweeksinrelationtosection1,whichinevitablymeantthatsection2wasalsogoingtobefourweekslate,thenthecontractor’sdefaulthadcausedthedelaytosection2,andhewasthereforeliablefortheliquidateddamagesthatwouldflowintheconsequences.

Accordingly,(1)the205. liquidated damages did not amount to a penalty.(2)The contract had to be interpreted in a common-sense and purposive way. The ordinary reader would not have any difficulty in concluding that the dates of completion in the sectional completion agreement were precisely the same as the dates for completion referred to in the contract. Accordingly, thewordingdidnotgive rise to anydifficulty intheoperationof the sectional completion arrangement. (3)Dyball sought a fullextensionof time for thedeferredpossession, but since the latter only arose inrespectofsections2to5becauseofthefour-weekculpabledelay,itwouldbeanonsensetorewardDyballforthatdelaybygrantingafullextensionoftimeonthesubsequentsections.

Declarationgranted.206.



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Sowhatarethekeypointstoremember?

Sectional completion provisions in contracts should be drafted carefully. Both207.clientsandcontractorsneedtohaveaclearunderstandingofthespecificrisksandobligationsthatariseasaresultofanyagreementtocompleteworksinsections.In this regard, robust contract management throughout the entire process isessential.

The losses related toeachsectionmust takeaccountonlyof the losses thatare208.relatedtothedelayinobtainingthatparticularsection.TheremustbeanimplicitacknowledgementintheLADclausethatlossesvarydependingonthesectionoftheworkconcerned.

Again,afailuretoprovideaccuratefiguresofestimatedlosstailoredtoaspecific209.partof theproject that isdelayedmay result in thecomplete failureof theLADclause.Thecourtswillbestrictwhendealingwithsuchclausesandwillconstruethewordingoftheclauseagainstthedraftsmanorthepartyrelyingonthem.ItisalsoclearthatwheresectionalcompletionhasoccurredinpracticethentheLADclausewillbeunenforceableunlessithascateredforitspecifically.

Itisnotopentotheclaimingpartytocherry-picksoitonlywishestoclaimapartof210.theLADasawayofgettingaroundthefactthatsectionalcompletionhadoccurredbuthadnotbeenanticipatedbythedraftsmanwhentheLADclausewascreated.Inthiscasethewholeclausewouldfail.

Whereitis,attheendoftheday,impossibletoassessaLADfigurethenmorethan211.likely thecourtwill accept that theLAD sum in thecontract is appropriateandenforceable.TherationalebehindthatrulemustbethatifthecourtcannotdecidewhatlossisappropriatethenhowcanitdecidethatthefigureintheLADclauseisinappropriate.

Top Tips

(1) TheLADsumsmustbeapre-estimateofloss.Trytodocumentthemethodusedforitscalculationincaseithastobeshowntothecourtorindeedanyoneelsewhenitisused.Try,wherepossible,toshowthecalculationstotheothercontractingpartyinorderthatagreementcanbereachedthatitisreasonable.

(2) In contractswith sectional completiondates, LADfigures shouldbe consideredcarefullyandtakeaccountofeachsection’sestimatedloss.

(3) LADs shouldneverbedrafted in suchawaywhere they are a soleor exclusiveremedy(Temloc v Errill61).

61. (1988)39B.L.R.30)



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Disputes and 2009

Outthereintherealworld,timesarehard.Therecessionisbiting,jobsarebeing212.lost and the fit-out, leisure and hospitality industry has been particularly badlyhitasprivateconsumersandbusinessestightentheirbeltsandcutunnecessaryexpenditure.However,therearefirst-classopportunitiesforthoseintheindustrywhohaveavailablefundsnowthattheirorderbooksarethintoprocureconstructionworks.Forthefirsttimeinyears,constructioncostsaredroppingasdemandformaterials fallsasa resultof theglobaldownturn.Copper, steelandplasterboardarecheapernowthantwoyearsago.However,withmoneytight in thesystem,disputesoverentitlementreignandexplaintheincreaseinadjudicationsbymostoftheANBsandthefrenzyintheCompaniesCourtwhicheachmonthisseeingmanycontractorsputintoliquidationforfailingtomeettheircommitments.

Iwanttolookatsomehighlightswithyou.213.

Interpretationofcontracts

Inspiteoftheapparentlywell-establishedrulethatwhenacourtcomestoconstrue214.acontractevidenceofpre-contractualnegotiationsisinadmissible,commentatorshavesuggestedthatthelawinthisareaisinastateofunrest.TherecentHouseofLordsdecisioninChartbrook Ltd v Persimmon Homes Ltd & Ors,makestheirLordships’viewsonthedebateclear,andalsooffersusefulguidanceontheconstructionandrectificationofcontracts.

Theneedtomakesurethatcontractsarecompletelywatertighthasbeenillustrated215.

in this recent casewhere a dispute over themeaning of a single clause cost a

propertydevelopermorethan£3.5m.

In 216. Chartbrook Limited v Persimmon Homes Limited and Others62theHouseofLordswas concerned with that chestnut construction of contracts, in particular theexclusionary rule (i.e. that pre-contractual negotiations are inadmissible whenconsideringtheproperconstructionofacontract).

Thefacts

Chartbrook (theOwner)was theownerofadevelopmentsite,andentered into217.a development agreementwith Persimmon (theDeveloper) pursuant towhichPersimmon was to obtain planning permission in respect of the developmentsite,constructamixedcommercialandresidentialdevelopment,andthensellthepropertiesonlongleases.TheDeveloperwouldthenpaytheOwnerpursuanttoaspecificformulasetoutinthedevelopmentagreement.

TheDeveloperaccordinglybuiltandsoldthecommercial/residentialdevelopment.218.However,whenitcametopayingChartbrookinaccordancewiththedevelopmentagreement, the parties disputed the proper interpretation of the formula. TheDeveloperarguedthattheOwner’s interpretationoftheformulawouldresult intheOwnerreceivingawindfall,andthatitwasentirelyimprobablethatthepartieswouldhavemadesuchabargain(i.e.itmadenocommercialsense).TheDeveloperalsoarguedthatthepre-contractualmaterial(i.e.thevariouscorrespondenceanddocumentationbetween theparties prior to signing the contract) showed thatthe“windfall” interpretation was clearly not what the parties had commerciallyintended.

TheCourtofAppealdecision

The Court of Appeal found in favour of the Owner (albeit with one dissenting219.judgment).TheCourt’sviewwasthattheformulainthedevelopmentagreementwas “clear, certain and unambiguous and its arithmetic is straightforward”. The62. [2009]UKHL38



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Courtalsofoundthatnoexceptiontotheexclusionaryruleapplied,andthusthepre-contractualmaterial/negotiationswerenotadmissible.

TheHouseofLords’decision

TheDeveloperappealedtheCourtofAppeal’sdecision,andtheHouseofLords220.unanimouslyupheldthatappeal.TheydidsoonthebasisthattheCourtofAppeal’sinterpretationoftheformula(beinginaccordancewiththeOwner’sinterpretation)madenocommercialsenseandmadethestructureandlanguageofthevariousprovisionsof thedevelopmentagreementappeararbitraryand irrational,whereit was possible for the concepts employed by the parties in the developmentagreement to be combined in a rational way. The House of Lords “profoundlydisagreed” that thedraftingof the formulawas“clear,certainandunambiguous”andheldinsteadthatthedefinitionwas“obviouslydefectiveasapieceofdrafting”.Crucially,LordHoffmanheldthat“whenthelanguageusedinaninstrumentgivesrisetodifficultiesofconstruction,theprocessofinterpretation…istodecidewhatareasonablepersonwouldhaveunderstoodthepartiestohavemeantbyusingthelanguagewhichtheydid.Thefactthatthecourtmighthavetoexpressthatmeaninginlanguagequitedifferentfromthatusedbytheparties…isnoreasonfornotgivingeffect towhat theyappear tohavemeant.” Inotherwords,whereit is clear that somethinghasgonewrongwith the language in a contract, theproperconstructiontobeappliedisthatwhichareasonablepersonwouldhaveunderstoodthepartiestohavemeant.

Assuch,theHouseofLordsfoundfortheDeveloperPersimmonontheconstruction221.of the key formula. Usefully, the Law Lords also considered the question of theexclusionary principle.They gave fairly short shrift to theDeveloper’s argumentthat the current case shouldqualify as anexception to theexclusionary rule. Invariouspassagesof the judgments, their Lordshipsheld that“to allowevidenceof pre-contractual negotiationswould require theHouse todepart froma longandconsistent lineofauthority, thebinding forceofwhichhas frequentlybeenacknowledged” and that the exclusionary rule “could scarcely be more firmlyembeddedinourlaw”.

Comment

The House of Lords’ decision was a firm reaffirmation that departure from the222.exclusionaryrulewillonlybeconsideredinveryfew,exceptionalcases(specifically,wheretherulecanbeconsideredtobeimpedingtheproperdevelopmentofthelaworcontrarytopublicpolicy).

The emerging trend has been the courts’ determination to give effect to the223.“ECTreaty” principleswhich underpin the rules of award of contracts by publicbodies-inparticular,theprinciplesoftransparencyandequaltreatment.

TheHouseofLordsconfirmedthattherulesforcontractualinterpretationremain:224.

whatareasonableperson,havingallthebackgroundknowledgewhichwould•havebeenavailabletotheparties,wouldhaveunderstoodthem,byusingthelanguageinthecontract,tomean.

pre-contractnegotiationsare inadmissible for thepurposeof interpretinga•contract.

Cold steel of an injunction

Amec Group Limited v Universal Steels (Scotland) Limited63

Incircumstanceswhereonepayingpartyisforsomereasonwithholdingpayment225.fromanother,itmaybeattractiveforthepayingpartytorefusetodeliverapartof63. 2009EWHC560(TCC)



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itsbargainwhichitrecognisestobeofvaluetothepayeetocreatesomeleveragetoencouragepayment.Thepayingpartymay,however,find itselfonthewrongendofaninjunctionrequiringittoperformthatwhichitwithheld.

Asadiscretionaryequitableremedyaninjunctioncomesonlyatthediscretionof226.thecourttoenforcealegalorequitableright.Aninjunctionmaytakeavarietyofformsandtypicallyrequiressomeonetostopdoingortodoaspecifiedact. Anexampleofaprohibitoryinjunctionwouldbeonerequiringarespondenttostopanuisancelikenoisepassingontotheapplicant’sproperty.Amandatoryinjunctionisone that requires the respondent to take steps to reverse theeffectsof somewrongfulactortotakepreventativeactionbeforeitcausestheapplicantfurtheroranydamage.

In 227. Amec Group Limited v Universal Steels (Scotland) Limited thecaseconcernedanapplicationbyAmecforaninterimmandatoryinjunctionrequiringUniversalSteels(USSL)toprovideessentialQAdocumentationinrespectoffourjettyrestraintpilesandpilecapsthatithadcontractedtofabricateanddeliverforinstallationatanewberthingfacilityattheNavalDockyardinClyde.

DuetotroublewithUSSL’smanufacturingsubcontractorinChinabetweenAugust228.2007andAugust2008,thedeliveryofthepileshadbeensetbackandtherewerefurther problems come across in finding an appropriate shipping company. Adisputearoseoverwhetherabindingagreementwasreachedatameetingon29August2008resolvingthequestionofpaymentsandanallegedwaiverbyAmecof its claim fordamages againstUSSL.As a result of a subsequentdisputeoverpayment,USSLelectedtoretaintheQAdocumentationitwasrequiredtoprovideinaccordancewithitscontract.

The case identified a number of major risks in offshore engineering. These229.included:

Thequalityofsteeltobeusedinamarineenvironment•

Theavailabilityofsuitableinstallationvessels•

Theavailabilityofworking“windows”formarinework.•

ThesignificanceoftheQAdocumentationtoAmecwasthattheMoDneededsight230.ofitbefore1April2009toenableinstallationtoprogressinMay2009,failingwhichtidalconditionsweresuchthatthenextwindowofopportunityforinstallationdidnotariseuntilOctober2009.

Theapplicationfortheinjunctionwasmadeinanticipationoffinaldetermination231.ofthesubstantivedisputebetweenthepartiesatafullhearingbeforethecourt.Thejudgenotedthatthiswasanapplicationforaninteriminjunction,inrespectofwhichthe leadingHLdecision in thecaseofAmerican Cyanamid Co v Ethicon Limited[1975]A.C.396,gaverisetoathree-stagetestthatmustbeappliedbythecourt.Thecourtmustconsider:

Isthereaseriousquestiontobetried?1.

If there is, then the courtmust go on to decidewhether damages are an2.adequateremedyforaparty injuredbythecourt’sgrantof,or its failuretogrant,aninjunction.

Ifdamagesarenotanadequateremedy,itisnecessarytoconsiderthebalance3. ofconvenience.

Guidance as to the further test applicable to thegrantingof amandatory4.injunctionisprovidedbythecaseofNottingham Building Society v Eurodynamics



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Systems Plc[1993]FSR468asfollows:

Theoverridingconsiderationiswhichcourseislikelytoinvolvetheleast•riskofinjusticeifitturnsouttobe“wrong”.

Thecourtmustkeepinmindthatanorderwhichrequiresapartytotake•somepositivestepataninterlocutorystagemaywellcarryagreaterriskofinjusticeifitturnsouttohavebeenwronglymadethananorderwhichmerelyprohibitsaction,therebypreservingthestatusquo.

Itislegitimatetoconsiderwhetherthecourtdoesfeelahighdegreeof•assurancethattheplaintiffwillbeabletoestablishitsrightatatrial.

Inthepresentcasethejudgedecidedthattheinjunctionshouldbegranted.He232.reasoned that the dispute over the alleged agreement in August was clearly aseriousquestiontobetried,thatAmecdidhaveahighchanceofshowingthatnosuchagreementwasmadeandthatdamageswouldnotbeanadequateremedyintheeventofthecourt’sfailuretogranttheinjunctionbecauseUSSLwasasmallcompanyandwouldbewhollyunabletomeetthefullcostofdamagesthatwouldlikelybeincurredbyAmecintheeventofadelayininstallationofthepilesfromMaytoOctober2009.Thebalanceofconveniencelay ingrantingthe injunctionso that the installation could proceed.Quick, sensible, and satisfactory. Bang torights!

Online misrepresentation

Patchett & Anr v Swimming Pool & Allied Trades Association Ltd64

Thisnextcaseisawarningtoallthosewhomarkettheirconstructionbusinesson233.theinternetandmakestatementsontheirwebsitesastowhattheconsumercanandcannotexpectfromthecompany.Itwasallaboutadisclaimeronthewebsiteof apool installers’ tradebody.TheCourtofAppealhad todecidewhether thedisclaimerprovidedonSPATA’swebsitewaseffectivelybrought to thePatchetts’attentiontoenableSPATAtoescapeliability.

ThecasewasquitecomplexandentailedareviewofthevenerableEnglishcase234.lawsurroundingexclusionclauses,includingthecaseofHedley Byrne v Heller. This oldcasesetoutatestfordecidingthescopeofadutyofcarebetweenadviserandadvisee.Even thoughSPATAwon, themessage fromthiscase is thatexemptionclausesshouldbelocatedonthesamepageasany“advice”givenonawebsite.

Thefacts

In thesummerof2006,MrandMrsPatchettwere lookingtobuildaswimming235.pool in the garden of their home. Using Google, Mr Patchett came across thewebsiteoftheSwimmingPool&AlliedTradesAssociation(“SPATA”)inhissearchtoengageanappropriatecontractor.SPATAisawell-established,incorporatedtradeassociationanditsmembersincludemostofthemajorswimmingpoolinstallersintheUK.Fromthewebsite,MrPatchettobtainedthenamesandcontactdetailsofthreeofitsmembers.Ofthethree,aquotationfromCrownPoolswasobtainedandacceptedandtheworksdulycommenced.Priortocompletion,CrownPoolsbecameinsolventandceasedtrading,leavingtheworksunfinished.

ThedisputebetweenthepartiesarisesoutofstatementsmadeonSPATA’swebsite.236.Amongstotherassertions,thewebsiterepresentedthatCrownwasamemberofSPATA, thatSPATAmembershavehighstandards, thatCrownhadbeencheckedforcreditworthinessandthequalityofitsworkandthatCrownwasamemberofSPATA’suniquebondandwarrantyscheme.Furthermore,itstatedthatthisschemeoffered“customerspeaceofmindthattheirinstallationwillbecompletedfullytoSPATAStandards-comewhatmay!”64 [2009] EWCA Civ 717



45

ThePatchettsclaimed that they reliedupon the representationson thewebsite237.by choosing Crown Pools and entering into the contract. As it happened, therepresentationswereuntrue.CrownPoolswasonlyanaffiliatememberofSPATAandas suchwasnot coveredby thebondandwarranty scheme.ThePatchettsclaimeddamagesofapproximately£44,000asaresultofSPATA’sbreachofdutytotakereasonablecareinmakingtheserepresentations.

Incourt,HisHonourJudgeWorsterheldthatSPATAdidnotowethePatchettsa238.dutyofcareinmakingcertainstatementsonitswebsite.Theessentialreasongivenwas thatwhile SPATAnodoubt knew that the representations on theirwebsitewould likely be acted upon, it would not expect consumers to do so withoutfurtherenquiry.Thewebsitehadclearlystatedthataninformationpack,includingacontractchecklistsettingoutquestionsforpotentialtenderersandinstallers,wasavailableinadditiontotheinformationprovidedonthewebsite.

TheBirminghamCountyCourtfoundthatthethirdcriterianecessaryforestablishing239.arelationshipbetweenthemakerofastatementandtherecipientwhoreliesonthatstatement,assetoutinthecaseofHedley Byrne v Heller,wasnotsatisfied:“Itisknown,eitheractuallyorinferentially,thattheadvice[orrepresentation]islikelytobeacteduponbytheadviseewithoutindependentinquiry.”

ThePatchettsappealedagainstthisdecision.240.

Theissues

WastheresufficientproximitybetweenthePatchettsandSPATAandwoulditbe241.fair,justandreasonabletoimposeadutyofcareuponSPATAwithrespecttotheaccuracyofthestatementsmadeonitswebsite?

Thedecision

TheCourtofAppealagreedwiththeconclusionsoftheBirminghamCountyCourt242.anddismissedtheappealbyamajorityof2:1,withLadyJusticeSmithdissenting.TheMasterof theRolls, LordClarkeofStone-cum-EbonyMR,held that itwouldbeexpected thatapotential customerwouldobtain the informationpackpriortoappointinganinstaller.Hestatedthatthepartieswerenotinarelationshipofadviserandadvisee,andassuch,therewasnotsufficientproximitybetweentheparties togive rise to adutyof care. It couldnotbe fair for SPATA to assumealegalresponsibilityfortheaccuracyofthestatementsonthewebsitewithouttheconsumerenquiringfurther,whichthewebsiteitselfencouraged.

Furthermore, LordClarke held that SPATAhadnot given awarranty that Crown243.Poolswasatalltimescreditworthy,butratherthatitsfinancialrecordandpreviousworkhadbeencheckedinthepastandhadbeenuptoSPATAstandards.

Thoughacademic,itisinterestingtonotethatLadyJusticeSmithfoundthatthe244.website did little more than offer the information which was contained in theinformationpack.Shedidnotseethatthewebsitehelditselftobemerely“thefirststepintheprocess”fortheconsumertoobtainalloftherequisiteinformationandrespectfullydisagreedwiththeothermembersofthecourt.

Commentary

Thiscase isan important reminder to thosewhopromotetheirbusinessonthe245.internet.AstheMasteroftheRollsremindsus:“Itisimportantthatinformationputintothepublicdomainisaccurate.”Thoughitwasnotthecasehere,dependingonthesituation,acompanycouldbeliableforfalsestatementsandmisrepresentationsmadeon itswebsite.Equally,consumersmusttakecaretocheckall informationobtainedfromtheinternet.Websitesneedtobereadasawholeandwherethe



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website encourages the obtaining of further information, consumers shouldcertainlydoso.

Casedetails:

(1)Gary Patchett (2) Karen Patchett v Swimming Pool & Allied Trades Association[2009]EWCACiv717, 15 June2009, LordClarkeof Stone-Cum-EbonyMR, Lord JusticeScottBakerandLadyJusticeSmith

Fraudulentmisrepresentation-failingtoinformaclientthatateammemberhadquitFitzroyRobinsonvMentmoreTowers

Thefacts

The claimantwas an architect seekingpayments of unpaid fees in respect of a246.contracttodevelopaprivatemembers’clubandhotel.Contractshadalmostbeenagreedbetweenthepartiesandsodesigncommenced.Thecontractswerethensignedafewmonthslater,aroundMay2006.However,beforethosecontractsweresignedtheteamleaderhadresignedfromthearchitect.Thearchitecteventuallyinformedthedeveloperof the team leader’s resignation inNovember2006.Thedeveloperwasnot at all pleased, butnonethelessplanning applications for theclubandhotelweremade.Eventuallytheprojectwassuspendedinanincompletestate,andthedeveloperowedfeestothearchitectforwhichitservednonoticeofwithholding.

MrJusticeCoulsondecidedthatthecourtswillnotallowjusticenottobedoneif247.thecourt(thefinaldisputeresolver)isconcernedthatthesumdueisnot,infact,the sum towhich the claimant isproperly entitled.Mr JusticeCoulson thoughtitwouldbewrong“inallthecircumstances”forhimtoconcludethatthe“simpleabsence”ofawithholdingnoticeentitledtheclaimanttobepaidthesumwhichwastechnically“due”underthecontract,ifinfactthedefendanthadavaliddefenceastowhythissumshouldnotbepaidinfull.

GiventhatMrJusticeCoulsonthoughtthedefendanthadasubstantivedefenceto248.thefullamountclaimed,MrJusticeCoulsonthoughtthatitwouldbeartificialforhimtogivejudgmentforthesumwhichwas“due”underthecontract.However,asthedefendantwasinbreachofthecontractinfailingtopaythesumwhichwasdueat the relevant time, theclaimantwasentitled tobepaid intereston thosesumswhichwere,contractuallyspeaking,due.Thecourtwoulddeterminewhatamountwas“due” at a separate quantumhearing. (The judgment does not saywhetherinterestwillbepayableatacontractrate,orat8%overbaserate,undertheLatePaymentofCommercialDebts(Interest)Act1998.)

So, thereyougo.Section111of theConstructionAct1996doesnotdoexactly249.everythingitsaysonthetin.Nowonderlawyerscannevergiveyouastraight“yes”or“no”answer!

Theissue

Thecontractprovidedforpayment.Didthoseinstalmentsneedtobeadjustedin250.ordertotakeintoaccounttheservicesthatwerenotcompleted?

In addition, was the architect guilty of misrepresentation in failing to inform251.the developer of the team leader’s resignation. If so, did the developer have acounterclaimfordelay,disruptionandduplicationofwork?

Finally,hadthearchitectbeenprofessionallynegligentinrelationtotheplanning252.applicationfortheclubbecauseoftheamountoftimetakenandissuesrelatingtothecoordinationoftheworkofothers?



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Thedecision

Thearchitect’sentitlementtofeesdependedupontheperformanceofitsservices.253.Instalmentscouldthereforebeadjustediftheserviceswerealtered(inotherwords,additionalserviceswerecarriedout)ortheserviceswerenotproperlyformed.

In relation to misrepresentation, the architect’s continuing representation of254.the team leader’s involvement became false in March 2006. The architect wasconcernedthatthedeveloperwould lookelsewherebecauseofthe importanceofthatteamleader.Asaresultthearchitect’schiefexecutiveofficerhadmadethemisrepresentationknowinglyanddeliberatelywithoutanhonestbeliefinitstruth.Itwasthereforeafraudulentmisrepresentation.Itwasmaterialinthatitinducedthedevelopertoenterintothecontracts.Thedeveloperthereforehadacounterclaim;howeverontheevidencetheonlypotentiallossresultedinthereductiontothefeesthatwereotherwiseduetothearchitect.

Finally, thearchitecthadnotbeenprofessionallynegligent.Thearchitecthad to255.coordinatetheworkofothersandhadtoreasonablyseethatthoseothersdidthework.However,inthisinstancethearchitecthadnotfallenbelowthestandardthatonemightexpectofareasonablycompetentarchitectperformingasimilarrole.

ThecaseisinterestingwhatitsaidaboutADRanditswillingnesstopunish,byway256.ofanorderastocostswithregardtoanypartywhodoesnotagreetomediateorfailstocomplywithwhatisrequired.MrJusticeCoulsoncriticisedthepartiesfornothavingsoughttomediateeventhoughthereweresuchsubstantialdifferencesbetween them, as they could at least have succeeded in narrowing the issuesbetweenthem.

Comment

Thereallyinterestingaspectaboutthiscaserelatestofraudulentmisrepresentation.257.Itisraretoseecaseswhereajudgefindsthatapartyhasfraudulentlymisrepresentedthepositiontoapartyinordertoinducethatpartytoenterintocontracts.Here,theimportanceoftheteamleaderwassuchthatthearchitect’schiefexecutiveofficerwasconcernedthedeveloperwouldnotsignthecontractsiftheyknewtheteamleaderhadresigned.Thechiefexecutiveofficerknowinglymisrepresentedthetruthtothedeveloperandsothedevelopersignedthecontracts.Thechiefexecutiveofficerwasthereforeliableforfraudulentmisrepresentationleadingtoafinancialclaim.Inthiscase,thatclaimwasn’tashighasitcouldhavebeen,butitservestoremindeverybodytoensuretheydonotmisleadtheotherpartywhennegotiatingacontract.Rememberalsothatsilencecanalsoamounttomisrepresentationwherecircumstanceschange.Thisdecisionisawarningtoconsultantsandcontractorstogivecarefulconsiderationtotheresourcesthattheyagreetoutilisewhencarryingoutworkforaclient.

Asidefrompossibleclaimsforfraudulentornegligentmisrepresentation,advisers258.needtoconsideranyconductrulesimposedbytheirprofessionalbodiesandalsothepotentialimpactupontheirprofessionalreputations.

Casedetails:

Fitzroy Robinson v Mentmore Towers and Ors

[2009]EWHC1552(TCC)QBDCoulsonJ



48

Penal rates of interest or not

Thefacts

InthiscaseMasterGolfCo(“Masters”)boughtgolfclubsfromtworangesthrough259.their Far Eastern purchasing agents, Taiwan Scott Company (“Taiwan Scott”) forresaleintheUnitedKingdom.Clause2oftheagreementbetweenthemprovidedforacontractualrateofinterestof15%peryear.

Adisputearosebetweenthepartiesas towhatsumsweredue toTaiwanScott260.undertheagreement.

MastersboughtgolfclubsfromTaiwanScott,whointurnsourcedthemfromthe261.Far East. Masters refused to pay some invoices because it said customers werecomplainingabout thequality. Mastersagreed topay in instalments,but thendefaulted.TheHighCourtorderedMasterstopaythebalancebutrefusedtoawardthecontractualinterestrateof15%onthebasisofitbeing“anunreasonablyhighrate,andmore inclinedtowardsapenaltythenagenuineestimateof loss”.Bothpartiesappealed.TheCourtofAppealruledinTaiwanScott’sfavour.Interestratesin2001wereconsiderablyhigherthancurrentlyand15%wasnotexorbitantthen.TheCourtofAppealaddedthattheHighCourtwaswrongtodenyTaiwanScotta contractual rateof interestwhichhadbeenagreedbetween twocommercialparties.

Theissue

Wastheagreementforacontractual interestrateof15%enforceableorwas ita262.penaltyandthereforeunenforceable?

Thedecision

The appeal as to thedisputedpaymentswasdismissedbut the cross-appeal in263.relation to contractual interest was upheld. Longmore LJ emphasised that theinterestrateof15%waseitherapenaltyoritwasnot.Aninterestratecannotbe“moreinclinedtowardsapenaltythanagenuineestimateofloss”asstatedbythejudgeatfirstinstance.

Longmore LJ also examined the circumstances at the time the agreementwas264.entered into,commentingthat itdidnot“seemtomethatacontractual rateof15%was inanywayexorbitant in July2001”as, at that time, interest ratesweresignificantlyhigher.Hewentontoemphasisethattherateof15%hadbeenagreedbetween two commercial concerns in the economic circumstances of the timeandshouldnotbesetasidelightly.Accordingly,theCourtofAppealheldthatthecontractualinterestrateof15%wasnotapenaltyandinterestat15%wasawardedontheamountsheldduebythejudgeatfirstinstancefromthedatetheybecamedueuntilthedateofjudgment.

Comment

Thiscase isa reminderthat it isnecessarytoassesswhetheraparticularsumor265.contractualprovisionisapenaltybyreferencetothetimethecontractwasenteredintoandnotthedateofthebreachgivingrisetotheobligationtopay.

Atpresent the statutory rateof interestunder the LatePaymentofCommercial266.Debts(Interest)Act1998(the“Act”)is8.5%(i.e.8%overthecurrentBankofEnglandbaserateof0.5%).Arguablythiscasesuggeststhatpartiestoconstructioncontractsbeingenteredintonowmaybeabletoagreehigherratesofinterestthanthoseprovided for in the Act if this can be justified in the circumstances. However, awordofcautionshouldbesoundedinthatthisdecisionwasreached in lightof



49

theeconomiccircumstancesinJuly2001when,asemphasisedbyLongmoreLJ,interestratesweremuchhigher.

Casedetails:

Taiwan Scott Co v Masters Golf Company

[2009]EWCACIV685(CA,CivilDivision),Longmore,Pill&RichardsLJJ

Close - pinch points for JCT contracts in a recession

Itisclearthatthechillyeconomicclimatewilllastuntilwellinto2010.Wherethereis267.anincreasedlikelihoodofcontractorsoremployersgoing“bellyup”,theprovisionsof the contract detailingwhat happens in such circumstances gain heightenedsignificance.This creates significant risks forparties to constructioncontracts, assomeofussawalltoowellinthelastrecession,withtheobviousweaknessesofcontractorsandemployerstocash-flowdifficultiesandinsolvencyandfallingorderbooksandCVRs.65Theserisksincreasetheimportanceofthecontractprovisionsinthefiveareasoutlinedbelow,lookatthemandreviewthemeverytimeyoubidandkeepthemupontheradar.Theyareworthbeingontopofeverytimeyousteponthemerry-go-round,andwewilllookatsomeoftheminthesession:

Wherecash-flowbecomesan issue inthecourseofaproject– forexample•whereacontractorneedstopurchasematerialstocompletethejobbeforehehasreceivedpaymentforthatjob–theprovisionsinthecontractregardingthecircumstancesinwhichadvancepayments,escrows,pre-purchasedeedscanalsobecomehighlyrelevant;

Where theproject runs intodifficulties, and is stoppedpart-completed, the•questionofownershipofthematerialsusedbecomesimportant,astheymaybeofconsiderablevaluetooneorallparties;dittostep-inrightsoffundersandtheadventofa“new”clientintheshapeofabankwithdistressedassets;

Theprovisionsonsuspensionaredustedoffandinspectedtoseeiftheyare•sufficientstick tocalla tardypayingemployer into line. Often theyarenotworththecandleofpullingofffortheheavierengineeringpackagesandthiscanbewherethebiggestholesareburntinpockets;

Theprovisionson termination/determination in the contractdetailinghow,•inwhatcircumstances,andhowquicklyapartycanend thecontractor itsemploymentinthefaceofdefaultbytheotherparty;

Ifacontractorisstrugglingtobalancethebooks,itisinevitablethattheywill•fighthardoveranydisputedsums inacontract.Thiscan leadtoprotractedand increasingly bitter litigation. The provisions of the contract relating todisputeresolutionwillthereforebehighlyrelevanttothesuccesswithwhichthepartiesareable to remedy thedisputewithout incurringhigh litigationcosts.

Onethingissure;theseareasofJCTcontractswillbefertileinthetroughwe268.havedescendedintoinlargepartsoftheindustry.Thenextdecadewillbeverydifferentfromthelastforsure!

Simon TolsonJanuary 2010

65. Forthosewhodonotknow,CVRisthetraditionalpracticeofdeterminingandreportingprofitabilityofaconstructionprojectonaregularbasis.Bycompar-ingcostswithvalue(revenue)atacertaindate,youcanseethedifferencebetweenthecumulativeprofitorlossontheproject.

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RICS Legal Issues in Construction - JCT contracts Legal... · RICS Legal Issues in Construction - JCT Contracts 2 to mankind. Our architects and engineers are ahead of us and amongst