15 December 2020
Under Construction - Q4 2020 – 2 of 5 Insights
Omitting work from a building contract is common-place. However, if the work is then awarded to another contractor this can be a recipe for a dispute without careful consideration and clear contract wording. Most unamended standard form building contracts do not allow the employer to do this.
Contract variations clauses play an important role in enabling omissions to be made to the scope of work for the contractor. There may be many commercial reasons to omit work this but if a party wishes to reduce the scope of the works in order to transfer them to a third party, the contract provisions must make that clear. Otherwise an instruction to omit works in such circumstances will be a breach of contract. In taking away the right to do the work the employer is removing the contractor's opportunity to make a profit which was part of the bargain struck. The contractor could claim damages for their losses which depending on the wording of the contract, may include their loss of profit.
What if the contractor was doing a bad job? Doesn't matter. What if they were in delay? Doesn't matter either. The reasons that the work was omitted will not factor into whether or not there has been a breach of contract by the employer. The fact that the contractor has the benefit of a contract for the execution of work confers on the contractor not only a duty to carry out the work but a corresponding right to complete the work which it contracted to carry out (Abbey Developments Limited -v- PP Brickwork Limited  EWHC 1987).
A recent Scottish case Van Oord Limited -v- Dragados UK Limited  CSOH 87 reaffirmed the Abbey Developments principles. The case also examined the wording of the NEC3 sub contract at clause 14.3 which stated that the contractor may give an instruction to the subcontractor which changes the works, and that "in the event that a corresponding instruction is issued by the Project Manager under clause 14.3 of the Main Contract only […] omit (a) any Provisional Sum and/or (b) any other work, even if it is intended that such work will be executed by Others."
However, the subcontract did not contain any provision entitling the contractor to omit works and transfer them to an alternative sub-contractor, and so the omission was a breach of contract.
Further, the case clarified that, clause 14.3 of the sub-contract did not apply, since the project manager under the main contract had not issued a corresponding instruction to omit the works. Despite the breach, under the NEC contract, the omission was considered to be a ‘compensation event’. This meant that the method of valuation of the omission under the compensation event mechanism applied, even if this resulted in a reduction in rates for the remaining work.
In our experience, discussions around omitting work from a contract only arise when the project is not going well. However, without careful consideration, this can create further challenges. For example, issues such as design responsibility, warranties, impact on the programme, coordination and intellectual property all need to be considered. If the decision to omit work is taken and the contract does not allow for this, ideally the issue ought to only be raised with the contractor initially on a without prejudice basis. Once their agreement in principle has been secured and all relevant issues have been addressed, the contractor's written agreement and waiver of rights ought to be documented.
by multiple authors