Is The Omission Of Works A Breach Of Contract?

• Published date: 13 November 2020
• Subject Matter: Corporate/Commercial Law, Employment and HR, Contracts and Commercial Law, Employee Benefits & Compensation
• Law Firm: Hill Dickinson
• Author: Emma Milham

Summary

A case considering whether:

• it is always a breach of contract to omit work from a sub-contractor and pass those works to another sub-contractor; and
• how that breach of contract is to be valued by reference to the contract terms.

General

In its judgment dated 30 September 2020, the Court of Session, Scotland, held that while instructions to omit certain sub-contract works constituted a breach of contract on the part of the contractor, the NEC compensation event mechanism nonetheless applied to the valuation of the remaining works.

By way of background:

• Aberdeen Harbour Board appointed Dragados UK Limited (contractor) in relation to the design management and construction of the Aberdeen Harbour Expansion Project at Nigg Bay, Aberdeen.
• The contractor appointed Van Oord UK Limited (sub-contractor) under a sub-contract dated 16 March 2020 to undertake among other things, soft dredging works. The sub-contract was based on the NEC3 engineering and construction sub-contract conditions (Option B), as amended by schedules of amendments.
• Throughout the course of the sub-contract works, the contractor instructed various omissions of soft dredging work via contractor's instructions, which work it awarded to two other sub-contractors.
• The effects of the omissions were that: a) the sub-contractor was no longer able to undertake a significant proportion of the work and be paid for it (including the profit on that work); and b) each omission constituted a compensation event under the sub-contract, meaning the sum payable for works not omitted was calculated by reference to defined cost eg actual costs, both incurred and prospective, rather than sums included in the sub-contract's bill of quantities. In this matter, this resulted in a reduction in the amount payable to the sub-contractor for works still to be undertaken under the sub-contract.
• Following unsuccessful adjudication the sub-contractor maintained before the court (among other things) that the contractor was not entitled to reduce the sum payable to it for work done following the contractor's disputed contractor's instructions and claimed payment of sums calculated by reference to the original bill rate.

The court's decision

The court endorsed and applied the principles of English case Abbey Developments Limited -v- PP Brickwork Limited [2003] EWHC 1987, holding that while in principle agreements could provide for the omission of works and their subsequent award to alternative contractors (provided...