This article relates to a case study example of a dispute Pyments have had involvement with for several months and which has been the subject of serial adjudications. It is a stark reminder that what is written into the Contract is pivotal to the obligations placed upon the parties, despite any agreements reached prior to Contract formation.
The Contractor was appointed under a JCT D&B Contract 2011. The contract was negotiated on an ‘open book’ basis under a pre-construction services agreement (“PCSA”). The Main Contractor and the Employer agreed to work together under the terms of the PCSA to agree a lump sum cost for inclusion into the Building Contract as the Contract Sum.
The main reason why a dispute arose, was because there was a difference between the scope of works negotiated and priced by theContractor at the PCSA stage and the scope of works that ended up in the contract and included in the Employer’s Requirements (“ERs”).
Had the Contractor identified these differences at contract stage and insisted the contract documents were corrected, it could have either increased the Contract Sum or amended the scope of work included in the ERs.
It would of course have been preferable if the ERs had not contained items of work which the Contractor had not priced in the Contract Sum. It is possible this arose because the Contractor wrongly assumed agreements about the scope of works and price reached during PCSA ‘open book’ negotiations would be directly replicated in the ERs and other Contract Documents.
This adjudication was a stark reminder that the Contractor’s obligations are contained within ‘the four corners of the Contract’.
Alternatively, it may have been assumed that records of the pre-contract agreements reached with the Employer (which were recorded in correspondence / meeting minutes etc.), would have been sufficient to evidence which items of work were included in the scope of work, and which items of work were not.
There was clear evidence that the parties agreed that particular elements of work would not be included in the Contract Sum. In fact, there was written evidence that the parties removed a six-figure sum from the Contract Sum Analysis for same. Not with standing, a drawing indicating this particular element of work and words describing the disputed works, found their way into the ERs.
The Contractor’s claim in adjudication for the disputed work failed.
This adjudication was a stark reminder that the Contractor’s obligations are contained within‘ the four corners of the Contract’. This is a legal phrase which means that even if extraneous evidence exists which directly contradicts the Contract, it cannot be used in court. The courts will determine the meaning of a contract, solely by looking at the words (and other relevant information) in the Contract. In this instance… that meant the Contractor’s scope was wider than it had priced for. Despite extensive negotiations about the scope and documentary evidence of those negotiations, the adjudicator was not interested in anything other than the contract itself.
The adjudicator is almost certainly correct in this regard… albeit Pyments attempted a number of legal arguments in the adjudication to try to persuade him otherwise.
Another potential error of judgment by theContractor was that they may have assumed, wrongly, the Employer would act honestly and would honour agreements reached during PCSA negotiations… however, that didn’t happen. In Pyments’ experience, parties often become greedy in circumstances where contractual terms are unclear, giving an opportunity to avoid parting with very large sums of money.
In summary, where the Contractor identified the differences, it would have been preferable if they had gone on to actively change the relevant contract documents to properly reflect the scope the Contractor had priced. Whilst this can be a daunting task given the very extensive quantities of documents routinely included in Contract Documents, it is absolutely essential the Contractor properly and fully checks that the scope of work accords with whatever it has previously negotiated.
The First Recital is completed to include a description of the nature and location of ‘the Works’.
“Recitals”
“First the Employer wishes to have the design and construction of the following work carried out at (‘the Works’)and the Employer has supplied to the Contractor documents showing and describing or otherwise stating his requirements (‘the Employer’s Requirements’);
The note at the end of the First Recital confirms that the work the Employer wishes to be carried out is described in the documents titled “the Employer’s Requirements” The Second and Third Recitals confirm that the Contractor has provided proposals which meet the Employer’s Requirements.
“Second The Contract We set out the Scope of Works and the Contractor’s overall contractual obligations based upon the terms and conditions contained in the current JCT Design & BuildContract (2016).the Employer wishes to have the design and construction of the following work carried out at (‘the Works’)and the Employer has supplied to the Contractor documents showing and describing or otherwise stating his requirements (‘the Employer’s Requirements’);”in response to the Employer’s Requirements the Contractor has supplied to the Employer:• documents showing and describing the Contractor’s proposals for the design and construction of the Works (‘the Contractor’s Proposals’); and• an analysis of the Contract Sum (‘the Contract Sum Analysis’);”
"Third the Employer has examined the Contractor’s Proposals and subject to theConditions, is satisfied that they appear to meet the Employer’s Requirements[3]“
Interestingly, the foregoing is often transposed, i.e., to refer that the Contractor has examined the ER’s and is satisfied that their corresponding Contractor’s Proposals comply with the ER’s.
Footnote [3] is important and states: “Where the Employer has accepted a divergence from his requirements in the proposals submitted by the Contractor, the divergence should be removed by amending the Employer’s Requirements before the Contract is executed.”
Thus, the finally negotiated and agreed scope of works should always be precisely as described in the Employer’s Requirements.
Articles 1 and 2 set out the Contractor’s obligations and the Contract Sum.
“Article 1: Contractor’s obligations The Contractor shall complete the design for the Works and carry out and complete the construction of the Works in accordance with the Contract Documents.”
“Article 2: Contract Sum The Employer shall pay the Contractor……..the VAT-exclusive sum of…………………………………………………………. (£……………….:……….) (‘the Contract Sum’)
We set out the Scope of Works and the Contractor’s overall contractual obligations based upon the terms and conditions contained in the current JCT Design & Build Contract (2016).
In summary, the Contractor must carry out and complete “the Works” and the Employer must pay the Contractor “the Contract Sum”.
Clause 1.1 of the conditions provides a definition of “the Works” which refers you back to the First Recital and therefore, the ERs.
In summary, the Contractor is only paid forthe scope of works described in the ERs (no more, no less).
Clause 5.1 of the conditions defines a “Change” (equivalent to the JCT standard contract “Variation” or the NEC“compensation event”).
“The term ‘Change’ means: a change in the Employer’s Requirements…….”
Therefore, the Contractor is only entitled to additional payment for work that is in some way different to the scope of works included in the ERs.
The Contractor is only paid for the scope of works described in the ERs. If work is included in the ERs, the Contractor has contractual obligation to carry out that work, even if there is no money included in theContract Sum for that work.
But it can be… and often is worse than that!!!
It’s very possible that the Contractor will take longer to complete the Works (because he made no allowance in his programme to carryout work which he believed he wasn’t required to carry out).
If work is included in the ERs, the Contractor has contractual obligation to carry out that work, even if there is no money included in the Contract Sum for that work.
However, the work in question will not qualify as a “Relevant Event” pursuant to clause 2.26.1 of the conditions and does not qualify as a “Relevant Matter” pursuant to clause 4.21.1 of the conditions (because the work in question is not a “Change”).
Therefore, the Contractor will not be entitled to an extension of time and will not be able to recovery his additional time-related costs for the period of delay.
And worse still……
The Contractor is liable to deduction of liquidated damages by the Employer for the period of delay.
In summary, the ERs is the key set of documents in JCT DB 2016. Those compiling the contract documents must ensure that the ERs states exactly the scope of works the parties have agreed. Those carrying out theWorks need to be aware which documents comprise the ERs and exactly what is contained in those documents.
The place to look for this information is in the “Contract Particulars” which lists the documents that comprise the ERs. On large projects, this information might include numerous drawings, specifications, schedules, appendices, annexes, etc, etc.
The Contract Sum must match the scope of works priced by the Contractor and that exact same scope of works must be defined in the Employer’s Requirements.
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