Legal Developments In Construction Law: November 2020

Published date29 November 2020
Subject MatterCorporate/Commercial Law, Real Estate and Construction, Contracts and Commercial Law, Construction & Planning
Law FirmMayer Brown
AuthorMayer Brown

1 Omitting work to give to other subcontractors - Scottish court looks at the consequences under NEC3

An amended NEC3 subcontract in an Aberdeen harbour expansion project included soft dredging works. The contractor subsequently instructed the omission of some of the soft dredging and caisson filling and gave it to two other subcontractors. But was that a breach of the subcontract? If it was, did the subcontract deal with that and, if so, how?

The Scottish court deciding these questions referred to the 2003 case of Abbey Developments Ltd v PP Brickwork Ltd and Judge Humphrey Lloyd QC's conclusions, in summary that:

  • 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 contracted work;
  • a clause entitling the employer to vary the works must be construed carefully, so as not to deprive the contractor of its contractual right to complete the works and realise such profit as may then be made. Clear words are needed if the employer is to be entitled to remove work from the contractor in order to have it done by somebody else;
  • there is no principle of law that says that in no circumstances may work be omitted and given to others without incurring liability to the original contractor. The test is whether, on a proper interpretation of the contract read as a whole, the clause relied upon by the employer is wide enough to permit the change that was made;
  • the employer's motive or reason for instructing the omission of the work is irrelevant.

In this Scottish case, the court decided that, under the amended subcontract, an instruction to omit the work was a breach of contract but that the subcontract specified the only remedy for breach, that it was a compensation event. Did, however, the application of the subcontract compensation event provisions result in a reduction of the bill rate for the remaining work?

The court said that the fact that an instruction amounted to a breach of contract did not prevent it from being a change to the Subcontract Works Information. A calculation under clause 63.1 therefore had to be made, it was common ground that the calculation produced a reduction in the Defined Cost, and under clause 63.13, a change in the Prices was given effect by changes to the bill of quantities, the practical consequence being to reduce the rate payable for the remaining work.

Van Oord UK Limited against Dragados Uk Limited [2020] ScotCS CSOH_87

2. Court sets out guidance on assignment and novation and highlights a main contract termination issue

The employer on a power plant project terminated the main contract and, as required under the main contract, the main contractor assigned a key subcontract to the employer. But had the main contractor assigned all its rights against the subcontractor, or just future rights? This was important because...

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