Please find below Clyde & Co's latest projects and construction law update from October 2017

CASE UPDATE

North Midland Building Limited v Cyden Homes Limited [2017] EWHC 2414 (TCC)

The concurrency case that's got everyone talking

Traditionally, construction contracts have remained silent on the issue of concurrency, leaving any potential disputes to be resolved by the common law position that, in the event of concurrent delay, the contractor gets time but not money. However, it is likely that all this is about to change, with the Court confirming that parties are free to allocate concurrency risk in their contracts.

Concurrent delay has always been a contentious issue, with differing views as to the correct approach for dealing with concurrent delay when assessing extensions of time (EOTs) and also as to the actual meaning of concurrent delay itself.

True concurrent delay is the occurrence of two or more delay events (one an employer risk event and the other a contractor risk event), with equal causative effect, which occur at the same time and the effects of which are felt at the same time. This form of concurrent delay is rare and will only take place in exceptional factual circumstances. The more common type of concurrent delay is when two or more delay events occur at different times but their effects are felt at the same time (either coinciding or overlapping).

Traditionally, most UK contracts are silent on how concurrent delay impacts a contractor's entitlement to an EOT. This has largely been due to the uncertainty around whether express provisions allocating concurrency risk would be enforceable. One of the concerns was whether or not such provisions would offend the prevention principle.

Where the contract is silent, the position under English common law is that the contractor will be entitled to an EOT but not loss and expense (as there are issues in proving causation). This is generally referred to as the Malmaison approach (following the 1999 case of Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999) 70 Con LR 32) and was confirmed in the 2012 case of Walter Lilly & Company Ltd v Giles Patrick Cyril Mackay and another [2012] EWHC 1773 (TCC).

However, the recent case of North Midland Building Limited v Cyden Homes Limited has put such concerns to bed. The case centred on the correct interpretation of an amendment to the standard EOT regime in the JCT Design and Building Contract 2005, with the parties agreeing an additional proviso that 'any delay caused by a Relevant Event which is concurrent with another delay for which the Contractor is responsible shall not be taken into account'.

In construing the term, Fraser J took the view that 'there is no point of construction at issue on the clause in question' and holding that the meaning of the words 'is crystal clear'. He stated that 'The contractor would not be entitled to an extension of time for Event X (for which he was not responsible) in so far as delay caused by that event was concurrent with delay caused by Event Y (for which he was).

He gave short shrift to arguments by the claimant that, by virtue of the doctrine of prevention, the defendant's construction was 'not allowed' and that the effect of the clause was to make time at large. He stated that 'there is no rule of law of which I am aware that prevents the parties from agreeing that concurrent delay be dealt with in any particular way', finding that the prevention principle simply does not arise.

To provide further assistance, Fraser J also referred to the findings of Hamblen and Coulson JJ in the cases of Adyard Abu Dhabi v SD Marine Services [2011] EWHC 848 (Comm) and Jerram Falkus Construction Ltd v Fenice Investments In (No. 4) [2011] EWHC 1935 (TCC) respectively. Coulson J concluded, identically with Hamblen J, that:

'...for the prevention principle to apply, the contractor must be able to demonstrate that the employer's acts or omissions have prevented the contractor from achieving an earlier completion date and that, if that earlier completion date would not have been achieved anyway, because of concurrent delays caused by the contractor's own default, the prevention principle will not apply.' (emphasis added)

It is ultimately a causation point requiring the contractor to show that the employer's acts caused actual delay, which is impossible in circumstances of concurrent delay. This point was not open to Fraser J for decision but he stated that if it were, he would follow the same reasoning and come to the same conclusion as both Hamblen and Coulson JJ did.

This decision is going to have significant practical impacts on parties negotiating construction contracts. We now have a very clear case acknowledging the enforceability of provisions allocating concurrency risk, and court accepted wording. It is likely we will see more and more of these provisions as parties try to allocate such risks and achieve more certainty in their contracts.

Read the full judgment here.

Jacobs UK Ltd (formerly known as Jacobs Engineering UK Ltd) v Skanska Construction UK Ltd [2017] EWHC 2395 (TCC)

A referring party cannot always have its cake and eat it too

While it is accepted that a referring party has a clear advantage in selecting the timing and scope of the dispute, the right to adjudicate at any time does not mean that the referring party has an unrestricted right to start, abandon and pursue serial adjudications in respect of the same dispute. The Court will intervene in certain circumstances, as was explained in the present case of Jacobs v Skanska.

Skanska engaged Jacobs on a PFI project for the design and replacement of street lighting. A dispute arose between the parties as to the adequacy of Jacobs' design services. Skanska referred the dispute to adjudication and the parties agreed the applicable procedural rules and an extended timetable. Prior to Skanska's reply falling due, its counsel became unavailable and Skanska could not serve its reply. It sought an extension but this was not agreed. As a result, Skanska withdraw its reference to adjudication and the adjudicator resigned. A couple of months later Skanska referred substantially the same dispute to adjudication. The material issue in the present case was whether Skanska was able to do this.

Jacobs sought a declaration that the second adjudication was unlawful, an injunction preventing Skanska from taking a further step in the adjudication process and an order for its wasted costs. It argued the parties had agreed a specific timetable which they should be held to and Jacobs was entitled to a process that 'was fair to both parties and did not confer an uncovenanted advantage on the referring party beyond that implicit in the rough and ready adjudication process'.

Skanska argued there is no concept of abuse in adjudication and as a referring party it was free to obtain whatever tactical advantage it could – it had an unrestricted right to start, abandon and pursue serial adjudications in respect of the same dispute.

O'Farrell J agreed with Skanska – to a point. She held that there is no express or implied restriction in the Construction Act that prevents a party from unilaterally withdrawing a dispute prior to determination and then pursuing the same or substantially the same claim in a later adjudication. It is true that the principles of abuse of process do not apply to adjudications but this does not mean the courts will never intervene.

Section 37 of the Senior Courts Act 1981 gives the court power to grant an injunction to restrain a party from commencing or continuing an adjudication that is unreasonable or oppressive. O'Farrell J held that Skanska withdrawing its initial referral in the first instance was unreasonable in the circumstances. However, since the second adjudication was largely the same dispute, Jacobs could re-use its material and therefore the additional time and cost involved would not be enough to make the second process oppressive.

O'Farrell J did, however, make an order for Jacob's wasted costs on the basis that the parties had entered an ad hoc agreement that went beyond simply agreeing procedure and timetable. Skanska's breach of the ad hoc agreement entitled Jacobs to its wasted or additional costs as damages. Alternatively, there was an implied term in the ad hoc agreement entitling Jacobs to the same.

This case is a reminder of the rough and ready nature of adjudication and the tactical advantage gained by being the referring party. However, referring parties who are thinking about unilaterally withdrawing a dispute should take care to ensure that doing so would not be unreasonable and oppressive in the circumstances – otherwise they will likely be prevented from commencing or continuing a subsequent adjudication regarding the same dispute.

Read the full judgment here.

(1) Riva Properties Limited (2) Riva Bowl LLP (3) Riva Bowl Ltd (4) Wellstone Management Ltd v Foster + Partners Ltd [2017] EWHC 2574 (TCC)

A warning for architects: do you have a duty to advise on your client's budget?

This case is a stark reminder to architects and professional consultants alike to be alive to the duties owed to clients. In this case, Fosters was found liable to the tune of £3.6 million for a failure to determine the client's budget, and to work within this constraint when preparing the design, and for giving negligent value-engineering advice or, alternatively, failing to advise that such value-engineering was impossible.

The factual background to this case and the roles of the claimant parties involved is quite complex. In essence, the action concerned a claim in professional negligence brought by four companies, all controlled by one business man, Mr Dhanoa (D), against Foster + Partners Ltd (Fosters). In addition to various disputes of fact, the key issues related to the duty of care owed by Fosters, to which claimants the duty was owed and causation. For the purpose of this update, we will be focussing on the duty owed by Fosters to the contracting claimant only, Riva Properties Limited. We will be publishing a more detailed analysis of the case shortly.

In brief, D (through Riva Properties Limited) engaged Fosters as architect on a project to design and develop a five star hotel. Under the terms of the appointment, it was accepted that Fosters was required to exercise due skill and care in the performance of its duties. The schedule of services (which was based on RIBA's standard form) also required Fosters, under "Feasibility" Stages A and B, to identify D's requirements, including possible constraints on development, and to confirm these key requirements and constraints in a strategic brief.

The primary question was whether issues with D's budget fell to Fosters to identify. D argued that he had advised Fosters he had a budget of £70 million. Fosters argued that no budget was indicated by D. Fosters produced a scheme that was costed at £195 million. D allegedly increased his budget to £100 million in reliance upon Fosters advising that the project could be "value engineered" down to that figure. However, D could not obtain funding for the scheme, which he eventually discovered could not be value engineered down to £100 million. At this point D had spent approximately £4 million on professional fees.

On the facts and evidence submitted, Fraser J held that it was necessary for an architect in Fosters' position to establish whether there was a budget or not at an early stage, as that is the only way that all of the key requirements and constraints could have been identified. He found that there was a budget and it was a breach of Fosters' duty to exercise reasonable skill and care to (i) not determine this itself; and (ii) subsequently ignore it.

Fraser J also found that Fosters did give D advice that value engineering could reduce the cost of the scheme to £100 million and such advice was negligent. Even if this was wrong, he held that Fosters knew D intended to value engineer the scheme down to £100 million and, if that were impossible, Fosters had a duty to advise D of that fact, which it failed to do, again breaching its duty of care. The claimants were awarded approximately £3.6 million.

Fosters tried to dilute the scope of its duties by arguing that D was an experienced businessman and that, in the circumstances, it only had "a duty to advise if advice is sought" (per Gibson LJ in J Jarvis v Castle Wharf Developments [2001] EWHC Civ 19 at [94]). However, Fraser J held that such an argument did not assist Fosters as D did seek Fosters' advice specifically on the value engineering point Moreover, he could not envisage a situation where Fosters could avoid its obligation to identify key requirements and constraints simply because they were dealing with an experienced client. He stated that 'an experienced businessman who engages an architect to [design a project] within the budget of £70 to £100 million is no less entitled to have that engagement or retainer fulfilled, and to have the scheme designed within that budget, than a complete novice who does the same...'.

Fosters also tried to defend the claim by arguing that budgets equate to costs and costs have nothing to do with architects. Fraser J agreed that Fosters "did not have a freestanding obligation to provide detailed advice to the claimants on cost" but "the cost implications of Fosters' compliance with its obligations to provide the [services] did have to be taken into account by Fosters when preparing the design".

Following this case, architects should be considering very carefully what the terms of their appointments and schedules of services say, as well as what their practices are, with respect to the client's budget. An obligation to identify the client's requirements and constraints will impose an obligation on the architect to determine the client's budget, how flexible it is, and to take this into account when preparing the design. If professional advisors seek to carve out any of these obligations, they need to consider very clear, express wording to this effect – wording excluding 'cost advice' is unlikely to prove helpful.

Read the full judgment here.

REGULATORY UPDATE

Better, quicker procurement?

The European Commission has recently published its latest procurement initiative: "Making Public Procurement work in and for Europe." This reflects a recent review of the way public procurement operates across the EU and is of interest to contractors and buyers alike.

Fundamental to the initiative are the overarching themes of strategy and partnership. The partnership is a broad one, between national authorities, local bodies, businesses, stakeholders and the Commission, who are together encouraged to adopt a more "strategic approach" to procurement. The Commission recognises the need to create a more receptive, "needs based" procurement process in which data can be collated and where instances of non-compatibility and delays are reduced.

In summary, the proposal comprises four elements:

  • a "strategic approach" focused on six areas identified for improvement;
  • a voluntary scheme for buying authorities to obtain advice about their procurements and to share best practice (known as the Ex-Ante Assessment Mechanism and knowledge sharing platform);
  • the further professionalisation of public buyers; and
  • a planned consultation with stakeholders.

Amongst the areas identified for improvement within the strategic approach is the need to digitise and simplify procurement processes (for instance by rolling out the planned E-certis e-form system), increase accessibility for SMEs (by promoting the use of first instance review bodies) and to address the lag in the growth of innovation procurement (through the wider use of the pre-existing innovation partnerships procedure).

Of interest from a Brexit standpoint is a renewed focus on reciprocity in free trade agreements and a desire to conclude "ambitious procurement chapters" within those agreements. The Commission also calls for an end to the current impasse in the European Council around an International Procurement Instrument, with its potential post-Brexit ramifications.

The concrete expression of the "needs based" approach is the Ex-Ante Assessment Mechanism. This is aimed at large infrastructure projects (worth €250 million or more) where an EU helpdesk will answer questions relating to the initial stage of the procurement process. For larger projects (worth €500 million or more), authorities will be able to request a confidential and non-binding "notification" as to the compatibility of a procurement plan with EU procurement legislation.

For initial stage queries, answers must be provided within a month, though an authority may have to wait up to three months before it receives a full "notification." Despite being labelled an 'ex-ante' mechanism, the Commission envisages that feedback will be available "throughout project implementation."

The assessment mechanism will operate alongside an information exchange database for use by national authorities and contracting entities. This database will include tender files, contracts, guidelines on procedures and court rulings, and will be supplemented by a separate information exchange platform that will allow those involved in large infrastructure projects to share their knowledge. Both the database and platform will be operational by early 2018 and will complement existing initiatives such as the JASPERS' Knowledge and Learning Centre.

There is a planned consultation with stakeholders (operative from 3 October 2017) to focus on the means of stimulating innovation through the procurement of goods and services. The consultation is open until 31 December 2017.

At the core of the Commission's proposal appears to be an emphasis on providing practically focused advice and guidance.

For contracting authorities in the UK, these proposals will be legislated on in due course and, depending on timescales, it remains to be seen what will be adopted by the UK post any Brexit.

The more strategic approach to procurement, especially on major projects, is to be welcomed. It remains to be seen how widely used a non-binding mechanism will be, particularly given the possible three month wait for a notification, but this could be a useful mechanism to reassure public bodies undertaking 'bet the ranch' projects. In light of the recent National Audit Office report into the failed Nuclear Decommissioning Authority procurement, increased scrutiny is likely on the larger projects in the UK.

For more information or advice on any procurement issues you may be facing please contact David Hansom, Partner or your usual contact at Clyde & Co.

Consultation on the Construction Act and retention practices

On 24 October 2017, the Government announced a non-statutory post implementation review of the 2011 Changes to Part 2 of the Housing Grants, Construction and Regeneration Act 1996 (the Construction Act) and a review of the practice of cash retention under construction contracts.

The consultation on the Construction Act will focus on the effectiveness of the 2011 changes, the framework of rules created by the amended Construction Act, the affordability of these changes for businesses, relevance and misuse of adjudication. There are three objectives for review as to effectiveness:

  • increasing transparency in the exchange of information relating to payments
  • encouraging parties to resolve disputes by adjudication, where appropriate, and
  • strengthening the right to suspend performance.

More generally, the Government wants to 'gauge the extent to which the existing construction payment and adjudication framework generally is working'.

The second review, into the practice of cash retention under construction contracts, is being published alongside independent research carried out by Pye Tait Consulting. The consultation will seek to gather evidence on a number of conclusions drawn by, and areas identified for further investigation by, Pye Tait's research.

The consultations run in parallel, with a response period of 12 weeks, closing on the 19 January 2018.

NIC's interim National Infrastructure Assessment released

On 13 October 2017, the National Infrastructure Commission (NIC) released its interim National Infrastructure Assessment, setting out its 'vision' for the UK up to 2050.

The aim of the National Infrastructure Assessment (NIA) is threefold: to 'analyse the UK's long-term economic infrastructure needs, outline a strategic vision for the next 30 years and set out recommendations for how identified needs should be met'. The release of the interim report is the first key stage for the NIC in developing the NIA.

In addition to the NIC's 'vision' for the UK, the interim report identifies long-term infrastructure needs in light of this vision and highlights priority areas for action over the medium-term. The seven key areas examined in the report are:

  • Building a digital society
  • Connected, liveable city-regions
  • Infrastructure to support housing
  • Eliminating carbon emissions from energy and waste
  • A revolution in road transport
  • Reducing the risk of drought and flooding
  • Financing and finding infrastructure in efficient ways

CLYDE & CO 'IN THE NEWS'

David Hansom, Partner, featured in Energy Voice this month, writing about the cost of nuclear public procurement. Looking at the National Audit Office's new review into the high profile failed procurement by the Nuclear Decommissioning Authority (which cost the taxpayer more than £120m) he considers what the lessons are for procurers, contractors and the courts.

Read the full article here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.