Common Issues Arising in Construction Contracts - Essay Example

Construction Law Ans The Draft protocol was devised with the intent of providing guidance on common issues arising in construction contracts, so that parties can use such guidance as a tool and avoid disputes. However the protocol has been criticized for this very reason and critics have stated that it should have been designed as a formal protocol rather than as a guidance tool.1 Since the provisions of the protocol are intended to be a guidance tool, they end up creating more confusion on some aspects rather than resolving them. Construction projects cannot be placed on par with other kinds of projects because delays in construction and claims arising out of such delays have always been an integral part of construction law. According to Yates and Epstein, there is an enormous amount of time, energy and cost that is devoted to delay claims which do not strictly begin around the time of completion of the job, rather these delays commence right at the inception stage of the project itself.2 The Protocol states that the process of analysis of delay can only begin to be addressed when there is an understanding about what work was carried out and when such work was carried out, as a result, the Protocol recommends that contractors maintain a written record of what work is to be carried out on the project and when it is to be done over the specified time period. However, as McCredie points out, this causes difficulties, not only in terms of the extensive record keeping which the contractor will now have to maintain, but also from the point of view of correlating those records with schedules and locations3. In the case of Great eastern Hotel Company Ltd4, charges of negligence by contractor and resultant losses thereof as claimed by Great eastern Hotel were not upheld by the court and no relief was allowed for losses sustained. In this case, the difficulties in establishing causation of delay leading to losses were also demonstrated. There is no definite court precedent to establish causation of loss due to delays and in this case, it was pointed out that the Courts have not laid down any formal tests to establish causation, rather they have relied upon commonsense and an interpretation of the individual facts in a particular case in order to determine whether the breach of the contract was a sufficiently substantial cause of the claimant’s loss.5 Therefore the party that violates the contract is liable only if the breach was in effect the “effective cause” of his loss.6 An action for losses caused by a breach of contract will not be effective if there was merely the opportunity or occasion for loss created but actual loss cannot be effectively established.7 This decision shows how the element of ambiguity and confusion that already exists in case law makes legal actions in construction contracts difficult and contentious to pursue. However, the new protocol does not alleviate such problems by effectively incorporating provisions addressing such ambiguities into formal provisions that can be relied upon by the Courts. Since these are only guidelines and not formal provisions, they do not address the complex nature of establishing delay and losses caused. Another aspect that is controversial is the issue of float. The protocol states that unless clearly specified otherwise in the contract, the float should belong to the project, As a result, this allows the advantage to the employer, where he may be able to use the float in order to reduce his own risks and this is likely to be a contentious issue from the point of view of the contractor.8 This is because the contractor is the one who designs the float in the first instance, therefore it has been created for his benefit and not for the employer’s; hence the net result of such a move may be that the contractor is likely to submit a construction program that barely shows the float. It is unlikely that any action can be taken against a contractor who indulges in such acts, since the Protocol is only intended as a guideline rather than a formal protocol, which limits its efficacy in that its binding nature is not enforceable, and must be dependent upon the willingness of the employers and contractors to adhere to the provisions spelt out therein in avoiding delays in construction and the disputes arising thereof. The Protocol also does not address several other issues – for example, the question of the contractor’s claim for extension of time, which provides the opportunity for a contractor to claim damages for additional costs incurred during delays, which further increases the risk to the employer and is likely to viewed dimly by the architect/employers.8a According to Solicitor Hamish Lal in the law firm of Freshfields Bruckhaus Deringer, the fact that the protocol only sets out a guideline for resolution of issues makes it controversial, because it does not have absolute answers.9 According to Lal, the Protocol sets out the guideline and then leaves it to the contractor and the employer to formalize those guidelines and to incorporate them into their own contract. The Protocol only provides model clauses rather than a full set of basic principles that deal with the core contractual principles that form a part of the agreement between contractor and employer. Therefore, the ambiguity remains and with the lack of clarity that is available in the form of clear legal provisions, there is scope for abuse of the principles and their misuse by contractors and employers so that ultimately, matters cannot be successfully resolved in accordance with clear parameters. Thus, while it is possible that the protocol does succeed in laying out a workable broad foundation of principles it has not been able to carry through in terms of imparting enforceability of such provisions under the law. This places the burden of change on the employer and contractor rather than with the facility being provided for and accommodated within the legal system.10 Thus the new protocol remains largely ambiguous and difficult to implement in a clear way. Ans 2: The Protocol has recommended that a specified sum should be incorporated into the contract price, an amount which will be payable to the contractor when he provides a particular segment of work, with provisions for further updates. However in practice, unexpected complexities arise in construction contracts which cannot be resolved in such general terms. The Protocol suggests that where extension of time is concerned, the contractor should only be entitled to additional costs accruing from the specific delay, but in actual practice, a different result may be produced as compared to the suggestions in the Protocol11. For example, the case of Midland Expressway Ltd12 deals with a PFI construction contract and demonstrates how payment issues are complex and cannot be pre-determined with a 100% accuracy rate. In some instances, there are certain aspects that could be enforceable even when the formal contract does not specifically state them as such, or even when it states something contrary. For example, in this case, the construction project undertaken was a toll road and difficulties arose in the context of completing the project within the pre-established payment range due to the novelty of the kind of project in the UK. Moreover, specific road layouts were required by the Department of Transport but the sub contractors demanded extra payments. Contractual provisions did not allow extra payments for the sub contractor that exceeded payments due to the main contractor.13 However, the HGCRA does not exempt construction contracts from complying with the “pay when paid” scenarios.14 Therefore, this establishes that contractors cannot be prevented from recovering payments due to them. However, since construction contracts involve contractors and sub contractors, there is confusion and complexity inherent in implementing payment provisions. Differences in targeted costs and actual costs are a serious bone of contention in construction law cases and case law suggests that adjudication on payments has been contested in several instances.15 There could be issues of collateral warranties, involving recoveries on behalf of third parties, which involve further complexities and arise in some cases.16 Disputes in regard to application of the HGCRA payment provisions arise periodically, as also in the case of Ruttle Plant Hire Ltd.17 Adjudication of costs has often become necessary in several cases and such arbitration decisions are themselves the source of disputes.18 There are so many parties involved in a construction contract that it is often difficult to assess damages and where and from whom payments and compensation is due for delays and damages. For instance in the case of Brian Wicker Partnership19 an architect had to pay damages to the property developers for damages caused due to the defective design, despite the fact that no formal agreement to this effect existed. In the case of Dinkha Latchin20 the architect was able to recover fees on a quantum merit basis despite the fact that this was not part of the written contract or instructions. But the opposite result had been held in the case of Stephen Donald Architects21 where the architect was unable to recover fees on a quantum merit basis on an oral design contract. Thus, on the basis of the above, it may be noted that payment issues involving construction contracts are complex and difficult to resolve easily; they are often the subject of dispute due to the large number of parties involved, the huge costs and the difficulty in assigning responsibility for damages, with the provisions of the HGCRA providing inadequate coverage for all instances that could arise. Ans 3: The provisions of the Housing, Grants and Regeneration Act of 1996 do provide for the facility of adjudication of disputes, provided however that it can be established that a dispute does exist. The question of whether not a dispute had actually occurred was the issue in the case of Cruden Construction22 where an arbitration procedure was declared to be invalid since a dispute had not yet materialized. This has become one of the landmark cases in resolving the issue of what exactly constitutes a dispute. In this case, a claim had been made on the basis of a demand that had not been satisfied, however the complaint did not provide sufficient details in order to enable the opposite party to make a decision on whether or not to pay and therefore the claim was not held to possess the status of a dispute worthy of arbitration. Yet, there have been other cases where a claim has been allowed the status of a dispute, despite the fact that no written agreement specifying the details of contractual provisions existed and only oral contracts were operational23. Another aspect that has arisen is the question of validity of global claims, since these may or may not be valid by applying the provisions of the HRGCA. In the case of John Doyle Construction Ltd24 it was held that global claim may be viable and eligible to attain the status of a dispute, however the claimant is required to dissect each separate element and prove his case. But in the case of Birse Construction Ltd25 the appeal failed due to the failure of the appellant to establish a claim for breach of contract. Disputes arise at every stage of the construction process, however not all of them can be deemed to be valid from the point of bringing an actual claim in the courts and a motion for adjudication. Giaquinto has pointed out several cases where there has been ambiguity in determining whether a valid claim does in fact exist, which can be brought before the courts and adjudicated upon26. The ambiguity in whether or not a dispute had in fact been established was also the issue in the case of Amec Civil Engineering Ltd.25a In this case, Amec were contractors for a viaduct but when problems arose with it, the Secretary of State for transport referred the problem to another engineer to make a preliminary assessment and decision, without consulting Amec first. Later that decision was referred to Amec to implement, failing which the issue would have to be brought before an arbitrator. Amec later challenged the decision of the arbitrator and the Court established that in this case, Amec’s claim was not valid because there was no requirement for the SS to consult Amex before referring the matter to an expert. This shows how an issue that is not covered contractually may arise between two parties and pose difficulties in determination of whether or not it can acquire the status of a dispute when such a claim is not covered in the detailed contract between the parties. The new Protocol has sought to lay out parameters that can clarify the complex construction issues and to limit the scope for disputes through 21 core principles that relate to the time involved and money payable when there is delay or disruption. Most claims arise out of EOT disputes of the contractor. It has provided guidance on EOTs that are generated by variations in contract and by specifying concurrency in compensation. However, the problems is that the nature of problems arising in construction disputes are manifold and not all of them are covered under the Protocol, which is furthermore intended only as a guideline. Difficulties arise in intermediary contracts and oral contracts, where no definite rules or regulations exist, even under the HGRCA to cover every plausible kind of claim that may arise and which could be deemed to be a dispute that can be adjudicated. The requirements of the Courts for provision of proof to support a claim before it can be adjudged as a dispute makes it difficult to establish in every case. Whether or not a claim can be referred to for adjudication therefore remains a contentious issue since no clear parameters have established for every kind of case that may arise. These are tricky issues, but according to McCredie, the Protocol does provide for some pragmatic guidelines which could be helpful in bringing the parties closer together and reducing the scope for disputes arising between them27. Bibliography Books/Articles: * Burr, A and Lane, N, 2003. “The SCL Delay and Disruption Protocol: Hunting Snarks.” UK. Contr. Law Journal, 19(3): 135-143. * Birkby, Gillian, 2002. “Contracts: delay and Disruption” Superpractice: professional , December 2002, pp 67-68. [online] available at: http://www.eotprotocol.com/pdfs/riba0212.pdf * Chitty on contracts, (29th edition) Volume 1 Sweet and Maxwell * Housing Grants, Construction and Regeneration Act (1996) * Legal Protocol helps limit disputes.” NCE report [online] available at: http://www.eotprotocol.com/pdfs/nce021031.pdf * McCredie, Jim, 2006. “Resolving Construction Disputes.” [online] available at: http://www.eotprotocol.com/pdfs/foracc0212.pdf * Yates, J.K. and Epstein, Alan, 2006. “Avoiding and minimizing construction delay claim disputes in relational contracting.” Journal of Professional Issues in Engineering, Education and Practice, 132(2): 168-179. (April 2006) * www.legal500.com/devs/uk/cn/ukcn_041.htm Cases: * Amec Civil Engineering Ltd v Secretary of State for Transport [2004] EWHC 2339 (TCC) * Alfred McAlpine Construction Ltd v Panatown Ltd [2000] UKHL 43 * Brian Wicker Partnership v Hok International Ltd [2005] EWCA Civ 962 * Birse Construction Ltd v McCormick (UK) Ltd [2004] EWHC 3054 * Carillon Construction Ltd v Devonport Royal backyard(2005) EWHC 788 (TCC) * Cruden Construction Ltd v Commission for the New Towns [1995] 2 Lloyd’s Rep. 387 * Dinkha Latchin v General Mediterranean Holdings [2004] EWCA Civ 52 * Galoo Limited v. Bright Grahame Murray [1995] 1 All Eng 16 * Great Eastern Hotel Company Ltd v Laing Construction (2005) EWHC 181 (TCC); [online] http://www.bailii.org/cgi-bin/markup.cgi?doc=/ew/cases/EWHC/TCC/2005/ 181.html&query=construction+law&method=all * Heskell v Continental Express Limited (1995) 1 All Eng 1033 at 1047A * John Roberts Architects Ltd v Parkcare Homes (no 2) Ltd [2006] EWCA Civ 64 * John Doyle Construction Ltd v Laing Management (Scotland) Ltd [2004] A 806/01 * Midland Expressway Ltd v Carillon Construction Ltd & Ors (No: 2) * Quin v. Burch Brothers (Builders) Limited [1968] 2 All Eng 283 * Ruttle Plant Hire Ltd v S.S. for Environment, Food and Rural Affairs [2004] EWHC 2152 (TCC) * Stephen Donald Architects v Christopher King [2003] EWHC 1867 Read More