Mills & Reeve: Practical Completion

Tender pricing: Bargain basement or abnormally low?

Under the Public Sector Directive 2004/18/EC a contracting authority is obliged to reject an abnormally low bid due to the words used in the directive (“shall”).  When the UK government implemented the directive into national law (in the form of the Public Contract Regulations), the term “may” was used instead of “shall”.  At first sight this looks as though the rejection of abnormally low bids is a matter which is subject to the contracting authority’s discretion, rather than being mandatory. 

However, in Morrison Facilities Services Limited v Norwich City Council the court held that the true ambit of this obligation should be as stated in the Directive and not the Regulation, and although the contracting authority does not have to check each price quoted, it must examine the reliability and seriousness of the tenders which it considers to be generally suspect. 

In the above case, all the bids were within the range of £23 to £26 million, except for the successful bidder’s price, which was much lower at £17.5 million.  The contracting authority had itself budgeted the cost of the services in question at £27.4 million and had asked the bidder twice to verify its prices.  This clearly indicated that the contracting authority considered the bid to be suspect. 

Morrison Facilities Services Limited v Norwich City Council 2010 EWHC 487 (Ch)

Construction Act Amendments to IChemE, IMechE and IET

IChemE has issued amendments to its forms of contract. The amendments can be freely accessed from IChemE’s website. For more information go to IChemE

IMech, alongside the Institute of Engineering and Technology, has issued an amendment to the Model Form of General Conditions of Contract MF/1 (revision 5) to take into account the changes introduced by the Construction Act.

Try Your Best?

"All reasonable endeavours" obligations were discussed in Jet2.com v Blackpool Airport Ltd [2011] EWHC 1529 (Comm).  In the Jet2.com case, the judge emphasised that the extent of the obligation is ‘simply a question of fact’ and that its meaning should be determined by reviewing the terms of the contract rather than ‘other cases’.  This could result in uncertainty and to avoid this the parties may prefer to clarify the extent of the obligation in the relevant clause.

Asbestos continues to be HSE priority

University fined for Health & Safety breaches

Magistrates have fined Lincoln University £10,000 and ordered it to pay costs of £12,759, following the discovery of asbestos in four University buildings. A member of staff had become locked in a room after a door handle broke. After the door was forced open to free her, debris was noticed around the door handle. This was identified by the University's Health & Safety department as asbestos. A subsequent investigation by the Health & Safety Executive ("HSE") found that a number of locations across the University's estate had been subjected to asbestos surveys over several years. Those surveys had identified asbestos-containing materials and asbestos debris. However, no action had been taken to resolve the risks posed by this material. The HSE decided to prosecute the University for breaches of the Management of Health & Safety at Work Regulations 1999. The University pleaded guilty to two offences, resulting in fines and a costs order totalling over £22,000.

Breaches of Health & Safety regulations are criminal offences which can carry fines of up to £20,000 per offence in the Magistrates' Courts, along with sentences of imprisonment up to 12 months. For offences which are sent to the Crown Court for hearing, the maximum sentences are unlimited fines and up to two years' imprisonment.

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Revised Adjudication Rules

The following adjudication procedure rules (which parties can choose to use instead of the Scheme for Construction Contracts) have been updated to bring them in line with the recent amendments to the Housing Grants Construction and Regeneration Act 1996.

The revised editions are:

• The ICE Adjudication Procedure (2011), second edition, published by the Institution of Civil Engineers (ICE).
• The TeCSA Adjudication Rules, version 3.2 (2011), published by the Technology and Construction Solicitors Associations (TeCSA).
• The CIC Model Adjudication Procedure, fifth edition (October 2011), published by the Construction Industry Council (CIC).

One cherry, one bite

We all know you can’t adjudicate the same dispute twice. A subcontractor tried to do that to Carillion after losing first time through lack of evidence. Last week the High Court stopped him. Same dispute, no jurisdiction. The judge listed useful points to take into account:

take a reasonably broad-brush approach as to what the claims are; 

putting in different or additional evidence will not usually alter what the dispute is; 

different or additional arguments don’t usually mean it’s a different dispute; 

different claim amounts or calculations are not necessarily a pointer to the disputes being different; 

don’t be over-awed by the amount of detail, evidence or analysis when comparing the two claims; 

it is OK to look at the expressed motivation of the referring party and the given reasons for the new basis of formulation; 

notices of adjudication and referral notices have no compulsory form and do not need to be interpreted as if they were contracts, pleadings or statutes; 

are the causes of action the same? One dispute can encompass more than one cause of action.

ACE and RICS amendments

The ACE and RICS have both published amendments to their forms in order to comply with the amendments to the Construction Act.

The ACE has updated the following:- Agreement 1: Design, Agreement 2: Advisory, Investigatory and other Services, Agreement 3: Design and Construct, Agreement 4: Sub-Consultancy and Agreement 8: Adjudicator.

The RICS has issued a new UK Residential Property Standards (“the Blue Book”) and has also published amendments to ICC Infrastructure Conditions of Contract. The amendments relate to the following versions: Measurement, Design and Construct, Term, Ground Investigation, Minor and Target Cost.

Programmes - a conundrum

I have a conundrum - to what extent should the inability to produce a meaningful programme be penalised?

NEC3 goes as far as allowing 25% of the amount due to a contractor to be retained until the first programme is received by the Project Manager, but a consultant will not be similarly penalised under the NEC Professional Services Contract if it does not deliver a programme.

JCT does not address this, nor does the "old" GC/Works form, even though the programme features large in GC/Works.

So should we be adding in penalties or putting in other inducements to encourage the provision of good quality programmes. What do you think?

 

Construction insolvencies - what does it mean for your projects?

According to the credit insurer, Euler Helmes, there were more insolvencies in construction than in any other sector during the first six months of 2011. 

Where an insolvency affects consultants and contractors mid project then clients will be concerned about the possible ramifications for their projects.  What are some of the key considerations for a client in this scenario.

Can the appointment/building contract be terminated immediately? Does the appointment/building contract permit the client to retain the right to use any documents, post termination, prepared by the consultant or contractor and is the license to use these documents irrevocable?

What accountability will the outgoing consultant or contractor have for the work they have carried out and should any incoming professional review the work done and agree the suitability?  An incoming consultant or contractor is likely to demand an uplift in their own fee if they are to be responsible for any work carried out by a previous professional.

What stage is the project at?  If the project is in the early stages it may be easier to appoint new professionals to undertake a new design whereas if the project is nearing the end it may be that little deviation on design is needed and the client does not need a replacement professional.

On a serious note.....

What was seen as one of the most radical, but actually most welcome, changes to the Construction Act was the amendment to the requirement that construction contracts have to be in writing in order to refer a dispute to adjudication.  The amended Act now applies to all construction contracts whether in writing, partly in writing or wholly oral.

This change is likely to complicate the task facing adjudicators, as they will now be more likely to face issues regarding the formation and terms of contracts. 

The onus is therefore on the parties to the contract to ensure that written contract terms or in place.  It is acknowledge however that although parties might intend to enter into contract, the terms of the contract might, for one reason or another, never actually be finalised.  If it is the case that no written contract is entered into then contemporaneous notes of, for example, telephone calls and diary entries recording negotiations and discussions during meetings will become increasingly important as evidence of the terms of the contract and could actually be vital in persuading the adjudicator what the terms of the contract were.