Season of goodwill (not)

The year began well for the industry with the Supreme Court rejecting a judicial review of the £50bn HS2 project. More judicial reviews followed for HS2 and other projects such as the £1bn M4 relief road. Meanwhile the government progressed moves to limit the extent to which judicial reviews undermine democracy as well as cause delay and cost.

There remains far less scope for the government to reduce the rise of challenges to publicly procured projects, which EU law (over)regulates. However, in February there were three new EU directives, the regulations for which will come into force next year. The new rules seek to increase contracting authorities’ discretion, the use of e-procurement and SMEs’ slice of public sector work.

Certainly the same old pressures remain on SMEs. In 2014 subcontractors wrote off over £200m of late payments and retentions as bad debts, while 90% were not paid within 30 days.  Although the amended Construction Act has made it easier to catch out payers who don’t issue notices on time, it is clear that the act has not fulfilled its original aim of improving cashflow.

When it is contractors who don’t issue notices on time and the contract says their otherwise good claims are lost, two courts early this year proved reluctant to bar allegedly late claims (NIHE vs Healthy Buildings and Obrascon vs Gibraltar). The courts may be softening their strong support for time bar provisions, as indicated in 2007 in Multiplex vs Honeywell (No 2).

However, arbitrators may remain likelier to bypass time bar provisions, especially when employers have a duty to act in good faith. Despite a rare case in July of a court implying such a duty into a training contract (Bristol Groundschool vs IDC), it is unlikely that anytime soon our courts will imply duties of good faith into construction contracts. 

The courts’ zero tolerance approach to parties breaking court rules and orders was also tempered slightly in July (Denton vs TH White). However, with April’s rise in court fees, we may see parties reintroducing arbitration into their contracts. 

It is unlikely that anytime soon our courts will imply duties of good faith into construction contracts

Arbitration waned following the introduction of statutory adjudication in 1998, but the use of the latter is down about 40% since its peak a few years ago. Last month exposed the practice in adjudication of the referring party trying to fix who is appointed as adjudicator (Eurocom vs Siemens). Sadly, the adjudicator appointment process continues to compare poorly to that for arbitrators, even allowing for the time pressures.

While the Construction Act’s fitness for purpose was at stake in 2014, so too was Robin Rigg Wind Farm’s. The contractor’s design met the due care and diligence standard but it was still liable for defects. The reason? The contract said the design “shall ensure” a 20-year lifespan and this strict duty also governed the contractor’s work (MT Hojgaard vs E.ON). 

Unlike contractors, consultants continue to benefit from a presumption that, without clear words, they do not undertake such strict duties.  They also benefit, in many contracts, from net contribution clauses (NCCs) which the Court of Appeal endorsed this year (West vs Ian Finlay). NCCs mean that when consultants and contractors are jointly liable for a defect, the former only pay the client according to their fault relative to the latter (whereas without NCCs consultants may pay the client in full and pursue the, potentially insolvent, contractors for their share). In such cases NCCs in consultants’ appointments make contractors the client’s primary target.

Contractors should also expect a harder time attacking liquidated damages (LDs) provisions, as three cases over the past year have shown (Building, 10.10.14). The law is now less concerned with whether LDs were a genuine pre-estimate of likely loss when the contract was made. While this increases contractors’ exposure to LDs, it may prompt them to provide more for delay LDs in subcontracts. Previously there has been a reluctance to do so given the difficulty of pre-estimating the loss caused by any particular subbie’s delay. This starker approach to LDs is compounded by the frequency with which extension of time claims, in the courts at least, meet with near total success or failure. 

Next year we should see which, if any, contractors have blacklisted workers (unless there is a settlement). Last month Norwich council became the latest public authority to take measures to ban any blacklister from tendering for council contracts. Stand by for more procurement-related litigation in 2015.

Rupert Choat is a barrister, arbitrator and mediator at Atkin Chambers