Internatioanl Construction Contract Consultants - Essay Example

February 12, To Chief E s Officer of Camford Camford Camford. Dear Mr. Robertson Thomas, This has reference to yourtelephonic conversation had with the undersigned about the slow implementing phase of project by the main contractor Firstbuild Ltd. I was informed by you that the project is already late in accordance with Firstbuild Ltd published programme. The substructure has only just been completed. As such , the employer , namely M/s Camford University is having difficulty in getting any clear indication from either the Contact Administrator namely CU Architects or the contractor namely Firstbuild Ltd as to whether the project will be completed on time or not. Further, you have pointed out that liquidated damages should be claimable, but the contract Administrator CU Architects has vaguely talked about the fact that there could be circumstances for extensions of time for: After giving careful considerations about the points raised by you over the phone on various issues of the project, I wish to bring to your kind attention the following legal provisions under JCT contract provisions. 1. Inclement weather A contractor’s privilege to avail an extension of time due to concurrent delays can be found in (Henery Boot vs Malmaison 1. In this case, Mr. Justice Dyson in 1999 cited an illustration in a work site where standstill of work was caused due to labor shortages, which was not a relevant event especially during phases of extraordinarily inclement weather, which was a relevant event. If during that period, if there is a disruption of work, which might have resulted in the delay of completion of contract by a fortnight, then, if an architect think it reasonable and fair to do so, then he must sanction an extension of time in spite of contractor’s labour issues. If inclement weather and short-supply of labour by the contractor has occurred not concurrently or in a parallel manner but has run from dissimilar commencing dates, then position will be entirely different. For instance, if labour shortage commences on Sunday and if the inclement weather commences from Wednesday, then there arises a question whether the two occasions are still to be considered as a concurrent event, or if they must start approximately simultaneously. In (Royal Brompton vs. Hammond2), Justice Seymour held in 2001 that they must commence simultaneously to qualify as a concurrent event. However, in (City Inn3) case, this was opposed by Lord Drummond Young. According to him, even if the starting dates of two events were different, this would still be regarded as the case of delays occurring concurrently, and it might be proper to allocate liability for the delay between the two events. No doubt, the verdict in City Inn will find more support from contract administers. In this case, the main question is when there are concurrent delays; it is to be judged how the administrator is to exercise their decision in concluding the extension of time on a reasonable and a fair basis. According to Justice Young, it is proper to allocate responsibility for the delay between the two grounds rather than granting time extension analogues to the whole length of delay that would have happened from the particular incidents operating in diverse scenarios. Though, these practices are common in US and Canadian tribunal and however, this practice has not been encouraged by the UK courts. Thus, a logical vision is not to be perused by the administrator, but should employ his judgment by reference to the available evidence. It is to be noted that there were multiple simultaneous causes in the City Inn case and the contractor was also identified with two specific defaults. Then, there arises a question how apportion can be effected? According to Justice Young, it should be done as if a court allocating liability on the contribution basis on wrongdoers or due to contributory negligence. In dealing with such situations, some of the critical factors that shall be taken into account where the extent of culpability associated with and the importance of each of these ingredients in creating delay. Finally, in City Inn case, the contractor was sanctioned a 9-week extension out of the eleven week extension asked for. Justice Young had also to decide the issue, whether the contractor’s claim for prolongation costs for the protracted delay had to be accepted or not. In City Inn case, it was put up by the contractor that where a contractor sustains extra costs due to a concurrent contractor delay and also due to employer delay, whether the contractor should only recuperate from compensation to the degree that it could recognise the extra costs created by the delay on the part of the employer. However, Justice Young disagreed to this and extended the same yard stick with that of extension of time issue and held that it is proper to allocate the losses sustained by the contractor where the losses arose due to incidents for which both parties were accountable. He awarded nine-week prolongation costs. Thus, the City Inn case has opened up a new vista by awarding extension of time due to simultaneous delays like inclement weather and short supply of labour, and if the delay has two basic causes, then why not allocate the loss proportionally was the crux of the issue. (Blackler 2008). Hence, in Camford University project work, I wish to advise that it is wise to follow the decision made in the City Inn case and to grant time extension to the contractor. 2. Antiquities It is better to add clauses in JCT contract as regards to contractual provision concerning with the finding antiquity objects during the course of a contract work for varied reasons. One has to be careful in regard to antiquity object as disturbance or removal of such antiquity from their original site may deteriorate their value. For instance, during the construction of a very expensive and large project in London, Shakespeare’s Globe theatre was found and this had delayed the project for a substantial period of time. (Murdoch & Hughes 2007:166). It is to be observed that fossils are considered to be priceless and valuable and some fossils may wholly degrade on exposure to an open atmosphere even for a short while. Further, archeologist can infer more about those fossils only if the same is left unaltered where it has been found. Thus, a paleontologist can derive more information about fossil or monument if its exact location of discovery is not disturbed. JCT contract contained elaborate provisions as regards to these issues starting with a general observation that all antiquities, fossils and other valuable objects of interest that may be found in the works site or during the excavation of the site and that will become the property of the employer. (Murdoch & Hughes 2007:167). If the contractor finds any antiquity objects in the works site, then he has to act according to the stipulations made in clauses 3.15 -3.17 of the JCT. In case, if the contractor finds any fossil or any other antiquity object, an employer has to give instructions as to the inspection, excavation or removal of such antiquities object. However, the contractor must employ his best efforts not to disturb the object and to safeguard the same in its exact location, even if it demands suspension of work either in complete or in part. Further, Clause 3.17 states that if any loss or expense is sustained by the contractor in this regard due to observance of employer’s instruction, the contractor can add such expenses to the contract amount. The only condition is that the contractor would not be compensated under any other head. Under clause 4.9, the contractor merely has to compute the total expenses or losses due to the stoppage of work due to presence of antiquities and submit it with his application for payment. (Chappell 2007:182). Under section 2 of the Ancient Monuments and Archeological Areas Act, 1979, it is an offence to execute or continue the construction work in a site where antiquity is found without proper consent of appropriate authorities. Further, 1979 Act also introduced the notion of “provinces of archaeological significance “or archaeological areas. (Chappell, Smith & Marshall 2001: 28). The Secretary of the State has the authority to delay the construction work and in such cases, no compensation is payable, unless the archeologist damage the works site. Further, if any of the provisions of this act is contravened, then criminal penalties may be imposed and the court can be approached to issue injunctions for further prevention of contravention. If the UK government by exercising its authority, directly impacts the execution of the works, the contractor is allowed to have an extra time for the completion. If the operations are uncompleted for the period of suspension as expressed in the contract details, both the parties are at liberty to terminate the contract.( Murdoch & Hughes 2007 :167). In this case , I advice that Camford University should grant time extension to the contractor and to inform the archeological department of UK government so that project work can be resumed after getting further clearances from the above department. 3. Insolvency Contractor’s employment can be annulled by the employer under clause 32.3, at any instance, by serving information to the contractor in the event of the contractor becoming ‘insolvent.’ This has been clarified under clause 39.2 as follows: A contractor is said to be insolvent when he makes an arrangement or composition with his creditors or becomes bankrupt, or if it is being a company; If it makes a scheme of planned organization for structure of debts or a proposal of arrangement to be endorsed under either Insolvency Act 1986 or under the Companies Act as the case may be; or If there is an appointment of a provisional liquidator. Has a winding up order made or If it proposes a voluntary winding up resolution. If an administer receiver or administer has been appointed under the Insolvency Act 1986 A notice can be served by an employer terminating the contractor’s employment due to contractor’s insolvency and it can be given at any time. Alternatively, an agreement can be reached either with a contractor who has become insolvent or those who are acting on behalf of contractor during his insolvency, under which a contractor has the privilege to continue the work on the same or varied terms and this, can be treated as waiver of employer’s right to terminate on the eve of insolvency. In such situation, the drafters of JCT contract should ensure that employer will not serve a termination notice in respect of the happening of that insolvency event. (Jones 2004:374). In case of insolvency, clause 7.2.1 authorises the employer to serve notice of determination and in such cases, no default notice is required and will be effective from on the date of acknowledgment by the contractor. (Chappell 2007:119). Further, in the event of insolvency of the contractor, it is better to seek legal advice since the status quo will become complicated. An employer may put an end to the service provider’s job at any moment and however, it should be observed that cancellation is no more mechanical in nature. In any instance, concerned with the article 8.1 and if bankruptcy occurs, the contractor should intimate the employer in writing immediately about such happenings. Further, article 8.5.3 is especially significant as it warrants that the date on which the service provider becomes bankrupt and it is a significant date and the date of termination of employment of contractor by the employer. (Chappell 2007:223). In (“MacJordan Constructiosn Ltd v. Brook Mount Erostin Ltd (In Administrative Receivership”))4 it was held that if the employer’s insolvency precedes the date of setting aside, the contractor will be in comfortable status with reference to the retention than would any other common creditor. (Chappell 2007:223). It is to be noted that in (British Glanzstoff Manufacturing Company Ltd v General Accidents5), it was held that in the absence of explicit wordings in the contract, the contractor is not answerable for any liquidated damages happening after the date of the determination. Thus, unless or otherwise, the contract says that the liquidated damages clause supersedes determination, in such cases only unliquidated damages can be claimed. (Always Associates 2009). In normal contract parlance, there may not be a breach of contract when there is insolvency. JCT contract offers proper wording for insolvency of the contract and JCT contract should be constructed accordingly. JCT contract can have any one or all the following wordings: In case of insolvency of the contractor, the contract will be terminated. To stop making payment to the contractor To initiate proper initiatives to make sure that the materials and works are safeguarded and kept on the site. Can assign the work to others and can recoup the costs from the original contractor and owner can even recover the cost of any damages or losses due to insolvency. It is to be observed that once the contract is put an end due to insolvency, and if the employer has already paid some advances, and in such event, he will be considered as an unsecured creditor and is only warranted to receive an analogous amount paid to all other unsecured creditors.( www2.biglotteryfund.org.uk). The decision in (“Melville Dundas Ltd (In Receivership”) 6, and in (“Dempster and Marchant v George Wimpey ( UK)) Ltd”7 could create a perverse scenario where the bankruptcy may have been kindled by the nonpayment by owner and employer is permitted to delay the payment until the completion of work by others and by addressing deficiencies before contract time has exhausted.( “http://www.alway-associates.co.uk”) Hence , I suggest that Camford University should serve a cancellation of contract notice on the contractor as he has become insolvent and to find out alternative sources to complete the project through other contractor or sub-contractors. 4. Fluctuation Clause: 4.21 Option A I wish to bring the following provisions of fluctuations clause to your kind attention. If the execution of the contract is delayed is due to inclement weather or due to findings of antiquities in the works’ site, a contractor will be benefited by the fluctuation clause which will act as a system for reimbursing contractors for variations in input prices over which the contractor has no control at all. Further, if the contractor has delayed the project than what is envisaged, the changes in the market price will be covered by a valid fluctuation clause, unless the fluctuation clause explicitly drafted otherwise. The operation the fluctuations’ clause simply brings into by JCT SBC 05, clause 44.21, and it specifies three alternatives by which fluctuations shall be dealt with. These options are known as the option, B and C. If no option is provided, then Option A will be applicable. Option A: Tax, levy and contribution fluctuations. If delay or price is escalated due to governmental action or levy of tax, which is beyond the control of the contractor, then Option A will be applicable. This provision of this clause will be applicable to materials, labour, goods, fuels and power but only to the magnitude they are influenced by taxes, etc. In some cases, this will be applicable only if the contract specifically states. It is to be noted that there is no ways and means set out in the clause, but apparently it would take into account like quantities of materials, man-hours and other directly associated costs. (Murdoch & Hughes 2007:218). 5. Major client required changes to the scheme amending the security systems throughout the building and changes to the design and construction of the skeleton structural shell of the laboratories in order to provide a secure environment for the research processed and activities Clause 5 of JCT is dealing with the changes or variation. The word ‘change’ is explained in article 5.1. It implies ‘a variation ‘in the requirements of an owner which makes it compulsory the modification or alteration of the design, quantity or quality of the contracts. However, it is to be noted that employer may not demand a change that may require a total variation in design, unless the contractor agrees. It is to be noted that the assessment of the changes and tentative amount is to be worked out by an accord between the contractor and the employer or as per provisions detailed in clauses 5.4 -5.7. No doubt, assessments should include the allowance for additions or changes and for oversight of pertinent design work. It is significant that the “Contract Sum Analysis” should detail a scheme for assessing the design work. It is better to include the provisions how to value the changes or additions in the design or other works in JCT contract otherwise a contractor may lose a considerable amount if encountered with an owner who experiences from continuous changes of mind. (Chappell 2007:200). 6.Late Issue of Drawings If an employer is compelled to pay extra amount to the main contractor or subcontractor for the late issue of drawings, can such a sum be recovered from the defaulting design engineer / architect by the employer? Employer who has been compelled to pay an additional amount to a contractor will always feel aggrieved due to late issue of drawings by the engineer or the architect. In such a situation, an employer will contemplate to deduct such a sum from the architect’s bill. For the employer to possess a legal privilege to initiate such action, he must corroborate that the late issue of drawings by the design engineer or architect was in contravention of his duty. Other than the breach of duty by the design engineer / architect, late issue of drawings will result in a number of causes. The employer may have introduced a late change or might have delayed in making a decision. Change in design might have necessitated due to change in the statue or by the fire officer. Belated information from the statutory authority or consulting engineer might have caused the delay. 7. Liquidated Damages: With the help of liquidated damage clause, when there is a breach of contract, the plaintiff can recoup his losses from the defendant without protracted litigation process. However, in construction industry, liquidated damages are always being referred as “penalties.” In (Biffa Services Ltd v. Maschinenfabrik Ernst Hese GmbH) 8, the liquidated damages clause stated that any liquidated damages payable due to delay from the contractor and the privilege to such damages were ‘without any prejudice to any other remedy or right of the employer. In this case, a fire broke out, and it delayed the project by seven months. The plaintiff tried to evade the extensive theory of liquidated damages by arguing that the liquidated damages covered only ‘simple delay in completing the contract and where the occasion of causing delay also resulted in consequential loss and in such occasion, the plaintiff has the right to claim the consequential loss also. The learned judge “Ramsey J” turned down the argument stressing the broad nature of liquidated damages. (Ndekugri &Rycroft: 286). In case, if the contractor has completed the work belatedly and the designer has issued a declaration of non-completion under article 2.22, in such circumstances, the employer is having the right to deduct the “liquidated damages” at the specified rate and in Camford University case, it is: £72,000 per week. It is to be noted that levy of liquidated damages is not mandatory. To claim liquidated damages, the contract owner must give information to the defaulting contractor. In (“J.J Finnegan Ltd v. Community Housing Association Ltd ) 9 , it was held that employer must give at least five days notice prior to the last date for disbursement under the final certificate. Further, an employer is having a right to deduct damages at a lesser rate than the specified in the contract. According to the Court of Appeal, the right to apply liquidated damages is a prerogative privilege of the employer when there is a delayed completion of the contract. It is obvious that those employer’s who has not failed to give notice or has not exercised his right to deduct, in such scenarios, a contractor cannot deduct ordinary unliquidated damages for the belated completion of the contract as held in (“Temloc Ltd v Errill Properties Ltd” 10). (Chappell 2007:133). Hence, according to me, damages cannot be levied due to inclement weather, finding of antiquity object, delay in the supply of design on a contractor under JCT contract provisions but a contractor has to be given extension of time Thus, we have to take into account various legal provisions and judicial precedents in arriving out whether a contractor can be held liable for inclement weather, delay in supply of design, delay due to finding of antiquities and delay due to labour shortages. Thus, in case, if you have any further doubts, please feel free to revert back to me. Regards, For International Construction Contract Consultants, Robert H CEO Notes Read More