Construction Contracts

Questions and Answers

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• Publisher: Routledge
• Year: 2015
• Print ISBN: 9781138134034, 9781138134034
• eBook ISBN: 9781317636038
• Edition: 3
• Topic: Technology & Engineering
• Subtopic: Civil Engineering
• Index: Technology & Engineering

Construction professionals of all kinds frequently need legal advice that is straightforward as well as authoritative and legally rigorous. Building on the success of two previous editions, David Chappell returns to provide answers to 225 FAQs from his experience as Specialist Advisor to the RIBA. With 50 new questions, and thorough updates to address changes to the law and contracts, this is an invaluable first port of call for any construction law problem.

Questions range in content from extensions of time, liquidated damages and loss and/or expense to issues of practical completion, defects, valuation, certificates and payment, architects' instructions, adjudication and fees. Among the new questions are:

Is the contractor bound by its price even if there is an error?

How do terms about working in a spirit of trust affect other clauses?

Can architects lose their rights to certify under JCT 2011 contracts?

Every question included has been asked of David Chappell during his career, and he uses his vast experience to provide clear, easy to follow advice in this book. Most were originally asked by architects, but the answers will be of wide interest to everyone involved in construction.

Chapter 1

Tendering

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1 Can the lowest tenderer legally do anything if its tender is not accepted?

Most invitations to tender contain a proviso that the employer does not guarantee to accept the lowest or any tender. It has long been thought that this allowed the employer considerable freedom to award the contract as desired. To some extent that is correct, but it is not the whole story, and employers should take care when tenders are invited that they do not leave themselves open to actions for breach of contract.

In Blackpool & Fylde Aero Club v Blackpool Borough Council,¹ the Court of Appeal set out the position when tenders are invited. The position is this: The contractor, by submitting a tender, enters into what can best be described as a little contract with the employer on the basis that the employer, in return for the contractor submitting a tender, will deal with the tender in accordance with the procedure set out in the invitation. At the very least, the contractor is entitled to expect that each properly submitted tender will receive proper consideration. An employer who does not properly consider each tender will be in breach of contract.

Unfortunately, it is not uncommon to find that an employer wishes to see all submitted tenders, even a tender that has been submitted after the closing date and time specified in the invitation. Whatever the architect or quantity surveyor might say, the employer may insist on seeing the tender. On discovering, perhaps, that the late tender is lower than the others, the employer will almost certainly wish to accept it; after all, that is the commercial thing to do.

If this tender is accepted, the employer will be in breach of contract because the others were invited to tender on the basis that only tenders submitted before the closing date would be considered. The submission of tenders created a succession of contracts, each of which included that term. A contractor who learns that the employer acted in breach of contract would be entitled to claim damages. Such damages would certainly embrace all the contractor’s costs in preparing the tender. If all the tenderers discovered the breach (and if one did, it is reasonably safe to assume that they all would), the total damages could be considerable.

There may be other stipulations in the invitation, for example about the course of action to be taken if an error is found in the pricing document. Failure to observe these stipulations will also make the employer liable to any tenderers disadvantaged as a result. Quite apart from legal liability, an employer who indulges in this kind of practice will soon find that no contractor is willing to submit a tender on future projects. In a recent case, an employer received tenders which were invited on the basis that the procedure would be in accordance with the principles of the Code of Procedure for Single Stage Selective Tendering 1996. In an effort to reduce the price, the employer asked the lowest tenderers to reduce their tenders; as a result, a tenderer other than the original lowest tenderer became the lowest and that tender was accepted. The original lowest tenderer took action through the courts, and it was held that the original lowest tenderer was entitled to recover not only its costs of tendering but also the loss of the profit it could have expected if it had carried out the project.²

However, if the employer strictly observes the rules set out in the invitation, neither the lowest nor any other tenderer has grounds for legal action if a tender other than the lowest, or even if no tender at all, is accepted.

Architects and quantity surveyors who find themselves having to deal with clients who show complete disregard for the tender process must seriously consider whether they can continue to act for such clients. Construction professionals must conduct themselves with complete integrity; this should be an end in itself. In addition, professionals who become associated with doubtful tendering practices will acquire an unenviable reputation among contractors with whom they will have to work in the future.

2 The contractor’s tender states that it is open for acceptance for six weeks from the date of tender, but the contractor withdraws it after three weeks citing a suddenly increased workload. Is the contractor liable to the employer for the additional costs of a replacement contractor?

The answer to this question is to be found in the law of contract.

When a contractor submits a tender, it is an offer to carry out the required work for a certain sum. The employer is free to accept the offer, reject it or attempt to negotiate. Until the offer is accepted, there is no contract. The law is that an offer can be withdrawn at any time before it is accepted, and there are some rather awkward rules regarding acceptance by post. Therefore, in normal circumstances the contractor can withdraw the tender before it is accepted, and, strictly, no reason need be given. The contractor has no liability for any additional costs suffered by the employer.

The position is different if the employer pays the contractor to keep the tender open. Tenders often state that ‘in consideration of a payment of £1 (receipt of which is hereby acknowledged) the contractor agrees to keep the tender open for acceptance for a period of x weeks from the date hereof’. This effectively creates a little contract between employer and contractor whereby the consideration is the employer’s payment of £1 and the contractor keeping the tender open. Effectively, the employer has bought an option for a few weeks to decide whether or not to accept the contractor’s tender. A sum of £1 may not seem much, but the law does not require that adequate consideration is given. It is sufficient if the consideration has some value. In this case, a contractor who withdraws the tender after three weeks would be in breach of the little contract, and the employer would probably be able to bring an action for damages. The damages would likely be the additional costs incurred by the employer in engaging another contractor for the work.

Many employers are not aware that the contractor’s offer is also brought to an end if the employer rejects it. An employer cannot reject the offer and subsequently, after undergoing a change of mind, decide to accept it after all. In that situation, what the employer may believe to be an acceptance is actually an offer on the part of the employer to form a contract on the basis of the contractor’s original offer. No contract is formed until the employer’s offer is unequivocally accepted by the contractor.

3 Is a contractor bound by its price even if there is an error in tendering?

It is common for errors to occur in tenders. Items may be priced twice or missed out altogether. The extent to which a contractor may be bound by its error will depend on what the tenderer and employer knew. Quantity surveyors checking tenders and priced bills are on the lookout for under-pricing, and they will draw any serious examples to the attention of the tenderer. The basic principle of course is that once a tender has been accepted the tenderer is bound by its price. However, that principle can be upset.

A good example is demonstrated in the case of Traditional Structures Ltd v H W Construction Ltd.³ There, a question arose regarding a serious error in pricing the tender of a sub-contractor. Traditional Structures (TS) was a sub-contractor requested to submit a price to the contractor, H W Construction (HWC), for the supply and installation of structural steel and roof cladding. HWC were tendering for a new business centre at the Birmingham Metropolitan College. Unfortunately, the last line of TS’s tender was missing. Instead of quoting prices of £37,573.43 and £32,365.83, the second figure was missing. The office copy TS had on file contained the last line. Therefore, TS was unaware of the omission. HWC asked TS how long the quotation of £37,573.43 for steelwork was to remain open.

In due course, HWC’s tender was accepted, and it notified TS by accepting its tender for steelwork and roof cladding but did not state any price. During the course of the work, when variations were required, it emerged that HWC was looking at £37,573.43 as the price for steelwork and roof cladding, while TS maintained that it was entitled to the full £69,939.26 plus the cost of the variations. HWC’s position was that TS was bound by its original tender price.

The courts usually work on the basis that the parties have made their contract and they must live with it. The court will only rectify (or put right) a contract in certain specific instances; in this case, it would be required for TS to prove that it believed the contract included the missing price and that HWC concluded the contract with the missing price while knowing that TS believed it to be included. The court ruled that there was a unilateral mistake in the contract which allowed the court to rectify it. The judge said:

I find that [the contractor] willfully and recklessly failed to enquire of the [the sub-contractor] whether the price of £37,573.43 plus VAT related to both the structural steelwork and the cladding elements of the work for which the [sub-contractor] was tendering, which enquiry in my judgment an honest and reasonable man would have made in the circumstances of this case.

The judge decided that HWC’s behaviour was ‘unconscionable’ in that it went beyond the boundaries of fair dealing. The same principles apply when an employer invites tenders from contractors. An employer who tries to gain an advantage by accepting a tender which he or she knows is defective is acting unlawfully, and the courts will act to rectify such contracts to reflect the true situation.

4 Does the architect have any particular duty to draw the attention of the contractor to onerous terms or amendments in the contract at the time of tender?

If there are onerous or unusual terms or amendments in the contract, the time to bring them to the attention of the contractor is at tender stage so that the terms or amendments in question can be taken into account in the contractor’s tender. If the architect waits until after the contract is executed and the contractor has begun or is about to begin work on site, it will be too late.

The position with regard to onerous terms is fairly straightforward. In general, the contractor will be bound by all the terms of the contract that were notified by the employer at tender stage or, at any rate, before the contract was executed. It is usually sufficient if the contractor is notified by means of the bills of quantities or specification. The part referring to the terms applying in each case is called the ‘preliminaries’. It is here that the contractor is informed of the contract to be used and of any changes to the clauses – for example a change in the period for payment from 14 days to 28 days. It is immaterial whether or not the contractor actually reads the terms, so long as the existence of the terms is known.

The point about using standard forms of contract or setting out bills of quantities in accordance with the Standard Method of Measurement is that contractors know what to expect. They know what the clauses say and what will be included in the bills of quantities and where. If the National Building Specification is used, even the wording of the various paragraphs can be reasonably anticipated.

If it is thought desirable to introduce changes to the standard contracts by amending clauses or even introducing new clauses, it will usually be good notice to the contractor if they are put in the usual places. The exception is if the change or additional clause is particularly onerous. What constitutes ‘particularly onerous’ will be decided ultimately by an arbitrator or judge, or temporarily by an adjudicator. No rules can be laid down about what constitutes an onerous change. Questions to be asked might include whether it removes important rights from the contractor or introduces significant duties, or whether it gives the employer significant new rights or removes some normal duties. However, the architect and the quantity surveyor must do their combined best to establish before tender stage whether a clause is onerous. If it is decided that a clause is onerous, steps must be taken in the documents to give proper notice or, to put it plainly, to bring it to the attention of the contractor. For example, the change must not be buried away in the small print. Not only must it be where the contractor would normally expect to find it, but it must also be highlighted in some way. Perhaps it should be placed at the beginning of the document or, in extreme cases, be referred to in the covering letter inviting tenders. Fifty years ago, Lord Denning famously said, ‘Some clauses which I have seen would need to be printed in red ink on the face of the document with a red hand pointing to it before the notice could be held to be sufficient’.⁴

If gener...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Preface to the Third Edition
• Abbreviations used in the text
• 1 Tendering
• 2 Pre-contract issues
• 3 Possession of the site
• 4 General contractual matters
• 5 Warranties, bonds and novation
• 6 Contractor’s programme
• 7 Contract administration
• 8 Architects
• 9 Fees
• 10 Design
• 11 Architect’s instructions
• 12 Inspection
• 13 Defects during progress
• 14 Defects after practical completion
• 15 Valuation and payment
• 16 Certificates
• 17 Sub-contracts
• 18 Extensions of time/Adjustment of the completion date
• 19 Liquidated damages
• 20 Loss and/or expense
• 21 Sectional completion
• 22 Practical completion and partial possession
• 23 Termination
• 24 Disputes
• Table of cases
• Index