The Employer has contracted the Contractor to build the road network for their new housing development.

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Basic Subject Matter of Report

Construction Contracts and Dispute Resolution.

Course Context

Masters Course in Quantity Surveying. Equally relevant to International Construction Project Management masters.

Report Requirements

  • Draft a report to advise the Employer on the appropriateness of the manner they have adopted to resolve and/or manage their dispute with the Contractor.

  • Recommend any suitable alternative(s) that could make the client successful in the dispute. 

  • The report should also critically analyse the suitability of any recommendations made, with authoritative explanation and justification.

Scenario

The Employer has contracted the Contractor to build the road network for their new housing development. The works contract also includes for the Contractor to design and install the street lighting complete with the necessary fittings and fixtures[A1] .

The two parties successfully negotiated and signed FIDIC’s Conditions of Contract for Construction for Building and Engineering Works designed by the Employer, Second Edition 2017[A2] , with no need to incorporate any modification in the Special Provisions[A3] .

Works started on site on Monday, 6th January 2020.  And, the two contracting parties have cooperated amicably until when the Employer refused to pay in full July’s Interim Payment Certificate (IPC).  They assert that the level of workmanship, for that part of the works around the junction where their sales offices are located, is substandard due to some key site personal needing to self-isolate as a result of the ongoing coronavirus (COVID-19) pandemic[A4] , and that part was done by temporary staff who have not worked with the Contractor previously. Indeed, there were three weeks in July when there were no site activities[A5] . the Contractor is not happy about not receiving their full payment, and have been demanding it ever since.

The site had to close again in the first three weeks of September, as several more key staff were self-isolating. And, for this, the Contractor has this time put in a request for extension of time (EOT) citing this as ‘an exceptional circumstance’, and also asked for more money, as a result[A6] .  Both requests were summarily rejected by the Employer on 5th October.

The Contractor is not at all happy and the two parties’ relationship has now deteriorated, as shown in the timeline of events:

  1. 6th October 2020: the Contractor wrote to the Employer giving its notice of intention to suspend the works, if they do not receive the full payment of July’s IPC. On that same date, they also issued their notice of their intention to terminate the contract, if they do not receive approval for their request for EOT and for more money that was summarily rejected on 5th October[A7] .
  2. 28th October 2020: without receiving the full payment, or the EOT and more money, the Contractor wrote to the Employer indicating they were terminating their contract, with immediate effect, and citing that the Employer has been failing to fulfil its contractual obligations[A8] .
  3. 29th October 2020: the Employer wrote to the Contractor, disputing the Contractor’s entitlement to terminate the contract and demanding that they return to site, or else they will terminate their contract[A9] .
  4. 13th November 2020: With the site still closed, and no word heard from the Contractor, the Employer wrote to the Contractor giving their notice to terminate the contract citing that the Contractor had abandoned the works and has showed no willingness to return to site and resume works.  They also expressed their wish to deduct Delay Damages, recall the Performance Security and refer their dispute to adjudication[A10] [A11] .
  5. 16th November 2020: the Contractor wrote to the Employer contesting the Employer’s right to terminate the contract, and asked for it to be withdrawn to avoid escalating the matter to adjudication, as they believe this would provide them with a quicker route to grant them redress. They also contest the Employer’s rights to deduct Delay Damages and to recall the Performance Security[A12] .

30th November 2020: still at a stalemate, with none of the parties doing anything to amicably resolve their differences, the Employer has now approached your firm of consultants for advice.  They wish to refer the dispute to a DAAB, whose members are yet to be appointed, as they found no need for them at the start with the very good working relationship the two parties enjoyed[A13] .

Key Concepts/Definitions in Scenario

IPC (Interim Payment Certificate): a concept created within the FIDIC standard form mentioned in the scenario. Essentially a request for payment issued by the Contractor in this case.

Special Provisions: a concept created within the FIDIC standard form mentioned in the scenario. These would supplement the standard form terms and conditions but, as the scenario sets out, are unused.

EOT (Extension of Time): a concept created within the FIDIC standard form mentioned in the scenario. A lever under the contract for the Contractor to move where its initial programme will be subject to delay; EOT isn’t an unconditional contractual right of course; rather, it can be levered only where certain circumstances and/or events have occurred.

Delay Damages: self-explanatory concept (commonly understood as liquidated damages) under the aforesaid standard form contract, pre-agreed amount(s) as a Employer’s remedy for delay.

Performance Security: again, under the contract, a lever or remedy for the Employer against the Contractor connected to its performance obligations/failure to discharge those.

DAAB (Dispute Avoidance and Adjudication): concept (board of people) created within aforesaid standard form. Disputes are referred to the DAAB and it issues binding decisions; it can also provide informal advice and assistance during the contract to the parties before a dispute crystallises (i.e. to avoid that). The DAAB’s actions can of course be undermined by a court, subject to the rest of the agreement in dispute.

FIDIC Contract Data

Sub-ClauseData to be givenData
1.1.85……………Time for Completion:                                             365 days
   
1.4………….……contract shall be governed by the law of:Scotland[A14] 
   
4.2…………..……Performance Security (as percentages of the Accepted Contract Amount in Currencies):            percent: ………………………………………………………………………..            currency: ………………………………………………………………………10 % Pound Sterling
   
8.8………….Delay Damages payable for each day of delay…………………………..£5,000.00
   
8.8………….maximum amount of Delay Damages ……………………………………………£500,000.00
   
12.2………….method of measurement ………………………………………………………..………Bill of Quantities
   
14.2………….total amount of Advance Payment (as a percentage of Accepted Contract Amount) ………………………………………………………  20 %
   
14.2………….currency or currencies of Advance Payment ……………………………Pound Sterling
   
14.3(iii) ………percentage of retention ……………………….…………………………………….Not Applicable %
   
14.7(b)(i)………period for the Employer to make interim payments to the Contractor under Sub-Clause 14.6 …………….………………………………28 days
   
14.8……………….financing charges for delayed payment (percentage points above the average bank short–term lending rate as referred to under sub-paragraph (a))………………………………….2 %
   
14.15………..currencies for payment of Contract Price:              Pound Sterling
   
14.15(a)(i) …..proportions or amounts of Local and Foreign Currencies are: Local …………………………………………………………. Foreign ……………………………………………………….£2,500,000.00 Not Applicable %
   
21.2………….Appointing entity (official) for DAAB members …………….    Association for Consultancy and Engineering (ACE)

Referencing

Harvard.

Will expect case law in the main, references to FIDIC clauses, some legislation (e.g HGCRA Act ’96 as amend’d) and perhaps academic commentary (less of the latter).

Word Count Constraints

3500 – 4000 (max).

Apportionment of Marks

  Element    Max. Mark
Introduction  10
Literature review / relevant background research50
Conclusions / Recommendations20
Referencing  10
Structure / Grammar  10


High-Level Thoughts on Report Approach

A few discrete issues seem to require dealing with:

  1. All the issues called out by the tracked comments, basically.
  2. Payments, timing of requests and communications.
  3. Housing Grants/Construction Act ’96 as amended in re adjudication referral rights and payments.
  4. What the particular FIDIC standard form used says generally as it touches on the issues (Conditions of Contract for Construction for Building and Engineering Works designed by the Employer, Second Edition 2017). Aka FIDIC Redbook.
  5. What the surrounding case law adds to the issues.

Potential Authorities

Case law:

  • Al-Waddan Hotel Ltd v Man Enterprise SAL (Offshore) [2014] EWHC 4796 (TCC)
  • Attorney General for the Falklands Islands v Gordon Forbes Construction (Falklands) Ltd (2003) 6 BLR 280
  • Braes of Doune Wind Farm (Scotland) Ltd v Alfred McaLpine Business Services Ltd [2008] APP.L.R. 03/13
  • Bremer Handelgesellschaft mbH v Vanden Avenne Izegem nv [1978] 2
  • City Inn Ltd v Shepherd Construction Ltd (2010))
  • DeBeers v. Atos Origins IT Services [2010]
  • Doosan Babcock Ltd (formerly Doosan Babcock Energy Ltd) v Comercializadora de Equipos y Materiales Mabe Limitada (previously known as Mabe Chile Limitada) [2013] EWHC 3201 (TCC))
  • Gaymark Investments PTY Limited vs Walter Construction Group Limited [1999] NTSC 143
  • Motherwell Bridge Construction v Micafil Vakuumtechnik (2002) CILL 1913
  • Multiplex Construction v Honeywell Control Systems
  • Peak Construction (Liverpool) Ltd v McKinney Foundations Ltd (1970)
  • Steria Ltd v Sigma Wireless Communications Ltd [2008] CILL 2544
  • Walter Lilly & Co. Ltd. v Giles Patrick Cyril Mackay and DMW Developments Ltd. [2012] EWHC 1773 (TCC)

Literature/Reviews:

Access to FIDIC Contract

Available for LexisPSL members; some extracts available online; swaths of the relevant provisions from the contract are available online/Google will pull them up.

Footnote

I’m looking for a report to benchmark my own against as obtaining a pass is critical for me on these modules; I have a good handle on the ask and will have my own report drafted in around ten days so can come-and-go with any questions etc.

 [A1]Perhaps some brief coverage of appropriateness of the contract form used given two different projects (i.e. build the road network and, discretely, design and install the street lighting inc’ fixtures and fittings.

Can cover this quickly: contract is recommended for building or engineering works designed by the Employer’ or by his/her representative. This is usually, where the Contractor constructs the works as per a design provided by the Employer. Although, the works may involve some elements of civil, mechanical, electrical and/or construction works‘ that are designed by the Contractor. So probably not too unusual to use this standard form.

 [A2]AKA Fidic Red Book / Conditions of Contract for Construction.

 [A3]No special provisions (i.e. no bespoke terms added; just FIDIC standard form as published).

 [A4]This assertion needs dealing with: quality of workmanship and contractual rights in that regard. Seems nonsensical: work can’t be substandard because of self-isolation, but it can be late/behind time.

 [A5]This needs dealing with (temp’ staff with no pedigree).

 [A6]Needs dealing with in terms of contract rights/case law etc.

 [A7]Needs dealing with in terms of timings and rights under contract.

 [A8]As above.

 [A9]As above.

 [A10]As above.

 [A11]Refer to adjudication required consideration in terms of FIDIC terms and Housing Grants, Construction and Regeneration Act (HGRA 96 as amended by the Local Democ’ (etc) Act 2009).

 [A12]As above.

 [A13]Comment on the DAAB wish of the employer required (recommend, don’t recommend and why). Advs/Disadvs of dispute boards, adjudication etc.

 [A14]Scots law in play. Not profoundly significant as much case law and legislation in re contracts, construction etc is UK wide in its extent. However, rules in re contract formation et al are be subtly different.

Make sure to call out English precedents as such, probably binding in Scotland in most cases, esp where ratio bites on same statute or equivalent common law principles.

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