Case: A E Yates Trenchless Solutions v Black and Veatch. (Formerly Gleeson) 19 December, 2008 TCC.

Gleeson was the main contractor at Burrows Water Treatment Works in Dawlish, Devon. It invited tenders for a subcontract on the IChemE Brown Book for a water main.

On 20 October 2005, Yates quoted £221,827.92 to complete in four to five weeks. However, Yates would normally contract on an amended CECA or an NEC contact and it wanted its tender letter to prevail over the other subcontract documents. Furthermore, Yates said it would not accept the deletion of clauses similar to clauses 12 and 13 of the Institute of Civil Engineers’ conditions of contract or 60.1 of the NEC, which refer to unforeseen ground conditions.

Gleeson held a pre-contract meeting on 1 November 2005. The record noted the form of sub-contract was to be the IChemE Brown Book. However, the level of liquidated damages was not agreed.

Gleeson emailed its order number on 2 November 2005. Yates ordered the materials but queried the liquidated damages. Gleeson responded on 3 November and later posted its order number and documents, stating that the subcontract was the Brown Book.

The subcontract itself was never signed, although Yates did sign the VAT form.

Work started on site on 6 February 2006, but by 14 February Yates was having trouble with the ground conditions and emailed Gleeson on 16 February with possible changed drilling methods and extra costs.

Gleeson said it was Yates’ responsibility to complete in five weeks and substantiate any claim. On 26 July Yates made a claim ‘under the contract’ that the ground was different from that described in the tender. It referred to the terms in its quotation, plus clauses 3, 5, 6.2 and 6.3 of the Brown Book.

In January 2007, Yates claimed £1,327,529 for its costs to 31 October 2006, describing the subcontract as including the IChemE Brown Book. Gleeson replied on 25 May 2007 that the claim was deficient and unclear. Under clause 6.3 of the Brown Book, compliance with the contract’s notice provisions was a ‘condition precedent’ of entitlement to claim, ie a condition that had to be fulfilled.

Yates claimed its emails of 16 February 2006 and July 2006 had been complying notices. Then, in a further email notice in June 2007, Yates specifically referred to the Brown Book clauses 6.2 and 6.3.

The court held that the 1 November 2005 meeting had not accepted Yates’ quotation nor had Gleeson’s email of 2 November 2005. The subcontract sent on 3 November 2005, however, was an offer that Yates accepted by signing and returning Gleeson’s form, starting work, accepting variations and issuing its 26 July 2006 notice of a claim.

As a result, the court held that the parties had agreed that the Brown Book conditions applied, and that these took precedence over Yates’ quotation. Although the court was not deciding any part of the underlying dispute, Yates lost the first round.

Ann Wright’s analysis

Forming a contract requires an offer, acceptance, consideration and an intention to create a legal relationship. Here, the first two were the problem.

If an offer (in this case, Yates’ quotation) is not accepted in full, then the original offer is not accepted and a counter offer comes into existence. This is what happened at the meeting on 1 November, where there were differences on price, liquidated damages and whether the Brown Book applied instead of the CECA or NEC forms.

In the eyes of the court, neither the meeting on 1 November 2005, nor Gleeson’s emailed order number on 2 November, constituted acceptance of Yates quotation or formed the full-blown subcontract.

However, Yates’ action in ordering the materials at Gleeson’s request did form a simple contract, and Yates was entitled to be paid a reasonable sum for those materials.

The counter offer came into being through Gleeson’s action in sending the subsequent order and documents on 3 November, after the liquidated damages had been agreed. Yates accepted that offer by: signing Gleesons’ VAT self-billing form; starting work; accepting variations; and referring to a notice as being under the contract and clauses of the Brown Book.

The lesson is that if you want to undertake a contract but not to agree to the contract terms on offer at that stage, then you must be very clear on what you are signing up to.

Ann Wright LLB, FCIOB is a quantity surveyor and contracts adviser. Tel: 01675 466 009

Source

Construction Manager