Do you really want to sign up to a contract that allows your client (or the main contractor) to keep taking work away from you and giving it to someone else?

Contracts both entitle and oblige the provider to perform the whole of its scope – what I call a right to finish. This issue has recently been reviewed by the Scottish courts on a subcontract based on NEC3.

Gaming the contract

The main contractor was certainly playing a game that the subcontractors were blissfully unaware of.

It had ‘triple contracted’ up to one third of the subcontractor’s scope. The subcontractor was contractually bound to carry out the whole scope, although the contractor could choose for it to carry out the more difficult portion and transfer the easier elements to another subcontractor!

The subcontractor claimed this was in breach of the spirit of mutual trust and cooperation in clause 10.1 of its NEC3 subcontract. The court neither agreed nor disagreed… the spirit of mutual trust was weak, to say the least!

Permitted omissions

The court referred to Abbey Developments v PP Brickworks and summarised the basis on which works could be omitted from the contracted-for scope:

  • there is a duty and a right to complete the whole of the scope
  • any variaton clause must be construed carefully so ‘as not to deprive the contractor of his contractual right…to complete the works and realise such profit as may then be made
  • clear words are required if the party can remove works in order to have it done by somebody else
  • there is no legal principle preventing omissions, even if the work is given to another
  • motive is irrelevant (even when it appears to be gaming the contract).

 

The court observed that the contract may provide a means of compensating the (sub)contractor in the event of omissions – which could prevent any claim for damages arising from this breach.

In Van Oord v Bragados, the subcontract stated clear circumstances entitling the contractor to omit works (eg when omitted from the main contract), from which the court inferred that no other reasons for omission were valid.

Despite the breach, the subcontract made such an instruction a compensation event, with the effect calculated by the project manager under clause 60-61. This left the subcontractor without a further remedy or claim.

What should you do?

Regrettably, bespoke amendments to standard forms can have unsatisfactory and unexpected consequences that are difficult to adequately trace during the negotiation phase. Contract interpretation issues, multiple related terms and lengthy contracts combine to create a fabric whose threads are hard to unravel.

If you need help, get a professional in!

At the very least, (sub)contractors should exercise caution when reading any contract with wide rights to instruct omissions – especially where those rights are not accompanied by a right to compensation for the loss profits on the omitted works (or, even worse, reduce the rates for any retained works).

If you are paying for works, be prepared to pay for the whole scope or at least the profit on it all. Do not use contracts as ‘options for works’ which can be added to or removed without penalty.

 

Related content: variation myths, termination at will

Case: Van Oord UK Limited v Dragados UK Limited [2020] ScotCS CSOH_87; Abbey Developments Ltd v PP Brickwork Ltd [2003] EWHC 1987 (TCC).

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