LAWYERS TO THE
CONSTRUCTION &
ENGINEERING INDUSTRIES
www.klgates.com
Summer 2007
In Site
Own goals:
when is time at large?
The circumstances in which time will
be 'at large' in a contract as a result of
the prevention principle were
considered in the recent Wembley
Stadium case, Multiplex Construction
(UK) Limited v. Honeywell Systems
Limited (No.2) (TCC, 6 March 2007).
The prevention principle means that
an employer cannot hold a contractor to
a specified completion date if the
employer has prevented the contractor
from completing by that date. Instead,
time becomes at large. The obligation
to complete by a specified date is
replaced with an implied obligation to
complete within a reasonable time.
Acts of prevention by the employer are
commonly included in the list of
relevant events entitling a contractor to
an extension of time, such as in the
JCT suite of contracts, to avoid this
situation arising.
The Wembley project was already
suffering from significant delays when
Honeywell entered into a
communications systems sub-contract
with Mutliplex in May 2004 and delays
continued to be experienced after
Honeywell started work (with
Honeywell blaming Multiplex and vice
versa). During 2005 Multiplex issued
Welcome to the Summer edition
of In Site.
three revised programmes to
Honeywell, each showing a
progressively extended completion
date.
Multiplex issued these programmes in
the form of directions under clause 4.2
of the Sub-Contract Conditions, which
allowed it to issue 'any reasonable
direction in writing to [Honeywell] in
regard to the Sub-Contract Works
(including the ordering of any Variation
therein)'. Clause 11.10 listed the
Relevant Events entitling Honeywell
to an extension of time and included
'delay caused by any act of prevention
or default by [Multiplex] in performing
its obligations under the Sub-Contract'
(clause 11.10.7). The list of Relevant
Events did not include directions
issued under clause 4.2.
Honeywell's works were not completed
by the extended completion date.
Disputes arose and, in the first
instance, the adjudicator decided that
the extension of time clause did not
contain a mechanism for extending
time in respect of delays caused by a
direction under clause 4.2, and hence
time was at large. Multiplex rejected
this decision and issued proceedings for
declarations that time was not at large
continued on page 2
Welcome to the Summer edition of
In Site. In this edition we consider
the application of the 'prevention
principle' to extensions of time on
the Wembley Stadium project;
report on the new contracts being
published by the NEC and JCT;
provide our usual adjudication
update; and report on other recent
statutory and procedural
developments of interest.
Contents
Time at large
1
New contract forms
2
Adjudication update
3
Other recent developments
4
Who to Contact
4
In Site
continued from page 1
and that there was an effective
procedure to allow an extension of
time. Mr Justice Jackson agreed with
Multiplex and granted the declarations
sought.
Mutliplex's primary argument was that
there was an applicable mechanism for
extending the period for completion
i.e. directions issued under clause 4.2
did not need to be specifically referred
to in the list of Relevant Events as the
issue of the programmes was an 'act of
prevention' by Multiplex and hence
covered by clause 11.10.7.
Jackson J derived the following three
propositions from a review of the
authorities on the 'prevention
principle':
n
legitimate actions by an employer
may still be characterised as
prevention, if those actions cause
delay beyond the completion date;
n
acts of prevention by an employer
do not set time at large if the
contract provides for extensions of
time in respect of those events; and
n
insofar as the extension of time
provisions are ambiguous, they
should be construed in favour of the
contractor.
Honeywell argued that directions and
instructions lawfully given could not be
acts of prevention. The judge did not
agree and, applying the above
principles, considered that the correct
analysis was that directions under
clause 4.2 did not automatically qualify
for consideration under the extension
of time clause as many directions have
no effect on the duration of the works.
Nevertheless, if Multiplex issued a
direction which constituted a Variation
and which did lead to completion on a
later date, then such variation 'prevents'
Honeywell from completing by the due
date and is therefore an act of
prevention within the meaning of
clause 11.10.7 - even though it is
permitted by the contract. Multiplex
could, therefore, award an extension of
time rather than time being at large.
This case is a useful reminder that the
contract machinery is often there for
the benefit of both parties. It is
important for an employer to be able to
grant an extension of time when there
is an act of prevention as it may
otherwise be faced with the uncertain
situation of having works which only
need to be finished within a 'reasonable
time'.
New NEC3 and JCT Forms
NEC Term Service Short
Contract and Supply
Contract
Building on the growing popularity of
the third edition of the Engineering
and Construction Contract ('NEC3')
suite of contracts, the NEC will
introduce two new forms of contract
later this year. The Term Service
Short Contract and Supply Contract are
due to be published this Autumn and
reflect the desire of the NEC to cater
for the full procurement spectrum.
The Term Service Short Contract is
intended for use across a broad range of
services, but will represent a simplified
and shorter document than the existing
Term Service Contract ('TSC'). The
Term Service Short Contract is
intended for use at a sub-contract level,
below the TSC, but also as a standalone product. The NEC expects that
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SUMMER 2007
it will be suitable for a wide range of
services from grass cutting to bus and
taxi services, so it should be attractive
across a broad range of industry groups.
Although publication is pending, it is
understood that it will be based on a
fixed service period with prices based
on a lump sum or rates and quantities.
The NEC says the second of its new
forms, the Supply Contract, is being
released in response to popular
demand. Like the Term Service Short
Contract, the NEC expects the Supply
Contract to be put to a variety of uses.
It suggests that the contract will be
suitable for the supply of items such as
rolling stock, process plant and bulk
fuel/materials. The NEC emphasises
that the contract is suitable for use
even in sophisticated markets, but will
also be flexible enough to provide for
supply on a 'free issue' or call-off basis.
If it is indeed as versatile as the NEC is
promising then it will represent a
useful tool for many types of project.
The NEC suite of contracts is gaining
popularity all the time and there is no
doubt that these forms of contract will
enhance its appeal to potential users.
The NEC is trying to increase the use
of the NEC3 suite beyond its
traditional use in construction and
engineering projects and these new
contracts represent a step towards that
goal.
JCT Constructing
Excellence Contract
The new JCT Constructing Excellence
Contract was launched on 1 March
2007. Speaking at the House of
Commons launch, Sir Michael Latham
welcomed its 'highly readable' style and
focus on 'trust and fairness'. It is
continued on page 3
www.klgates.com
continued from page 2
intended for use throughout the supply
chain, including the provision of
professional services. Collaborative
working is at the core of the
Constructing Excellence Contract,
which is based on the Be Collaborative
Contract published in 2003. The
overriding principle of the contract is
that the parties have the intention to
work with each other and all other
project participants in a 'co-operative
and collaborative manner in good faith
and in the spirit of mutual trust and
respect' (clause 2.1). This principle is
given 'teeth' as the adjudicator or the
Court in any subsequent dispute will
take into account whether or not the
parties have adhered to that overriding
principle (clause 2.9). Other partnering
principles, such as supply chain
management, benchmarking and
effective management of risk are also
emphasised. The latter is done through
the introduction of a 'Risk Register' and
a 'Risk Allocation Schedule' for
considering fair and/or practical risk
allocations and time and cost
consequences. There is also an optional
multi-party Project Team Agreement
which, if signed up to, introduces a
pain/gain mechanism encouraging
participants to commit to the success of
the whole project, not just their part of
it.
This contract has come about as a
result of requests from the Local
Government Association for a
collaborative style of JCT contract
suitable for use by the public sector
and conducive to building long-term
relationships, but it is promoted as
being equally suitable for the private
sector. It forms a welcome addition to
the range of partnering and
collaborative working contracts (such as
NEC and PPC 2000) now available to
the construction and engineering
industries.
Enforcement of non-compliant
adjudication procedures
It is well established that, if the
adjudication provisions in a construction
contract do not comply with section 108
of the Housing, Grants, Construction
and Regeneration Act 1996 (the 'Act'),
then the Scheme for Construction
Contracts will apply and any decision
under the non-compliant adjudication
procedure is unenforceable. This
ground is often relied on by parties
seeking to resist enforcement of an
adjudicator's award.
Two recent decisions in the TCC have,
however, raised questions about the
ability of parties to resist enforcement
of adjudicators' decisions on this
ground.
There are a number of similarities
between the cases of Epping Electrical
Company Limited v. Briggs and
Forrester (Plumbing Services) Limited
(TCC, 19 January 2007) ('Epping') and
Aveat Heating Limited v. Jerram
Falkus Construction Limited (TCC, 1
February 2007 ('Aveat'):
n
they came before the same judge
within a fortnight of each other;
n
they concerned an adjudicator's
decision that was made under an
adjudication procedure which failed
to comply with the Act;
n
the problem with the procedure was
the same i.e. the procedure said that
the adjudicator's decision would be
valid even if delivered late; and
n
the judge found that this attempt to
render late decisions valid meant
that the adjudication procedure was
not compliant with the Act and the
Scheme applied.
Despite these similarities, the judge
refused to enforce the decision in
Epping, whilst allowing enforcement in
Aveat. How can these different
decisions be reconciled?
The crucial difference between the
cases is that in Epping the decision was
delivered late, whereas the adjudicator
in Aveat delivered his decision on time,
despite the fact that the procedure he
was following provided for late
decisions still to be valid.
The judge followed the generally
accepted reasoning that the Scheme
replaces non-compliant procedures, but
he appears to have gone one step
further and asked whether the way in
which the adjudication was actually
carried out offended the Scheme. In
Epping it did because the decision was
delivered late, which the Scheme does
not permit. In Aveat it did not, because
the decision was delivered on time, in
accordance with the Scheme.
What these two cases indicate is that a
contractual adjudication procedure
which does not comply with the Act will
not necessarily be enough to prevent
enforcement. A party resisting
enforcement will now also have to show
that the way in which the adjudication
was actually carried out offended the
Scheme.
SUMMER 2007
3
In Site
Other recent developments
Pre-Action Protocol
The Pre-Action Protocol for
Construction and Engineering
Disputes has recently undergone some
changes to streamline the protocol
process, prevent delays and reduce
costs.
Civil Procedure Rules Part 36. The
main changes include the following:
n
a defendant no longer has to make a
payment into court in support of an
offer to settle i.e. it no longer has to
prove it is 'good for the money';
From 6 April 2007, respondents have
three months, rather than four,
in which to respond to the letter of
claim and the pre-action meeting
should now normally be held within 28
days of the letter of response. Further
key amendments include a provision
that the costs of the protocol procedure
will have to be proportionate to the
complexity of the case and the amount
at stake and a recognition that not all
supporting documents and evidence
must be provided pre-action (the
guiding principle will be one of
proportionality).
n
the court's permission is now
required for either party to
withdraw or alter a Part 36 offer
during the relevant period (usually
21 days) for acceptance (offers
could previously be withdrawn at
any time). No permission is
required to withdraw or alter after
the relevant period;
n
if an offer is not withdrawn, it can
be accepted at any time without the
court's permission (previously,
offers could only be accepted after
21 days with the leave of the court);
The amended Protocol applies to
disputes that come into being from 6
April 2007. Disputes operating under
the Protocol before that date will not
be affected by the amendments.
n
if a defendant rejects a claimant's
offer, the claimant only has to equal
his offer to trigger the costs
consequences of Part 36 (rather
than better it);
Changes to CPR Part 36
New rules came into force on 6 April
2007 concerning offers to settle and
payments into court made pursuant to
n
in a money claim, a defendant's
offer must be for a single sum of
money. If payment is not made
within 14 days of acceptance (or
Who to Contact
For further information contact the following
Christopher Causer christopher.causer@klgates.com
Kevin Greene
kevin.greene@klgates.com
James Hudson
james.hudson@klgates.com
Linda Kent
linda.kent@klgates.com
Trevor Nicholls
trevor.nicholls@klgate.com
David Race
david.race@klgates.com
T: +44 (0)20 7360 8147
T: +44 (0)20 7360 8188
T: +44 (0)20 7360 8150
T: +44 (0)20 7360 8151
T: +44 (0)20 7360 8177
T: +44 (0)20 7360 8106
such other period as agreed),
judgment can be entered.
That offers may now remain open for
acceptance at any time (unless
withdrawn) is likely to have significant
tactical implications. It may give rise to
a situation where an offeree discovers
an unhelpful document and hence
realises his case is weaker than he
thought. He is then able to accept the
offer before the unhelpful document is
disclosed (which would presumably
otherwise have resulted in the offer
being withdrawn). One possibility may
be to state in the offer that it
automatically lapses after 21 days.
However, given the specific notice
provisions in CPR 36.3(6)&(7), such a
condition may have the effect of
turning a Part 36 offer into a
Calderbank offer and thus may not
necessarily afford the same degree of
costs protection as a Part 36 offer.
A new Practice Direction 36B has been
issued to explain how the new rules
operate in relation to offers and
payments made before 6 April.
Basically, any offers or payments made
before that date remain valid, but their
consequences will be governed by the
new rules.
K&L Gates
110 Cannon Street
London EC4N 6AR
www.klgates.com
T: +44 (0)20 7648 9000
F: +44 (0)20 7648 9001
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