Clare Mendelle and George Dale discuss and solve a common construction scenario, looking at the position under the Contract, and how the Employer should deal with the Contractor's request.
An Employer instructed a Contractor to demolish a disused warehouse and adjacent car park, then design and build a large block of flats surrounded by a landscaped communal garden. The demolition works are now complete, but during those works the Contractor discovered that the part of the site formerly used as a car park was built on top of an ancient pine forest and is not stable enough to support the weight of the block of flats. The design of the foundations will now need to be changed as a direct result of the ground conditions, which the Contractor estimates will take 4 weeks to do. The redesigned foundations will need to be deeper than previously envisaged, meaning additional materials and time will be required for their construction.
The Contractor informed the Employer of these issues on a recent telephone call, during which it asked for an extension of time to allow for the design and construction of the new foundations, and additional money for the increased material and labour costs.
The contract is an unamended JCT Design and Build 2016 (the Contract). No site surveys were carried out and the project documents do not address ground conditions. What is the position under the Contract, and how should the Employer deal with the Contractor’s request?
Time, Money and Ground Conditions in the JCT
Extensions of time and claims for additional money are addressed separately in the JCT so we will deal with these in turn, starting with time.
Clauses 2.24 to 2.26 concern extensions of time including as a result of ‘Relevant Events’, which are specified matters that cause a delay to the Completion Date.
Clause 2.24 requires the Contractor to give notice to the Employer as soon as it becomes apparent that progress on the project is being delayed or is likely to be delayed. The notice must include the causes of the delay, identify which of the causes is a Relevant Event, and give an estimate of the period of delay. Importantly, the notice must be in writing to be compliant with the notice provisions contained in Clause 1.7 of the Contract, meaning that the telephone call will not constitute valid notice.
Clause 2.25 requires the Employer to give a fair and reasonable extension of time for each notified Relevant Event, being the events listed in Clause 2.26 (including for example, delays caused by statutory undertakers or by adverse weather conditions). Notably, the list does not include ground conditions, and so in our scenario the Contractor would not be entitled to an extension of time even if the telephone call is followed up with a compliant notice.
The Employer must respond to a Clause 2.24 notice as soon as practicable (and in any event within 12 weeks), letting the Contractor know the extension of time – if any – that has been allocated to each notified Relevant Event.
In our scenario, notwithstanding the fact that the Contractor has not followed the contractual steps for claiming an extension of time, it would be prudent for the Employer to comply with the requirements of Clause 2.25 and notify the Contractor of its decision.
If the Completion Date is not adjusted and the Contractor fails to achieve practical completion by that date, then so long as the Employer complies with the notice requirements in Clauses 2.28 and 2.29 it will be entitled to levy liquidated damages for the period between the Completion Date and the actual date of completion, at the rate specified in the Contract Particulars.
Moving on to the request for additional money, Clauses 4.19 to 4.21 concern ’Relevant Matters’, which are specified matters affecting the progress of the Works that cause the Contractor to incur loss and/or expense.
Clause 4.19 provides that if the Contractor incurs loss or expense as a result of a Relevant Matter then, subject to complying with notice requirements, they will be entitled to have that loss or expense reimbursed by the Employer. The notice requirements in Clause 4.20 are almost identical to those in respect of Relevant Events. Accordingly, the telephone call will once again be insufficient to constitute valid notice.
The Relevant Matters are listed in Clause 4.21. Ground conditions are not included (the exception is if antiquities have been discovered) and so in our scenario – where the additional costs associated with the redesign and construction of the foundations are a direct result of the ground conditions – the Contractor would not be entitled to reimbursement.
The Employer will need to notify the Contractor of its decision as to whether the Contract Sum will be adjusted, but this time within a shorter period of 28 days. Again, although the Contractor has not followed the correct contractual steps, it would be sensible for the Employer to comply with its own obligations and notify the Contractor of the decision.
The Common Law Position
As the JCT is silent in respect of ground conditions, a dispute regarding entitlement to additional time or money will follow the common law position. In Bottoms v York Corporation, the court stated that where no ground investigations have been carried out and the Employer has not made any representations or guarantees about the ground conditions, the Contractor takes on the risk and so is not entitled to any additional payments if the conditions cause an increase in construction cost. The rationale is that the Contractor is a professional, and when quoting for a project will be expected to have considered the impact of the ground conditions on the construction cost and programme and, if necessary, have carried out a survey to ascertain the true position.
In Workshop Tarmacadam Co Ltd v Hannaby, the court held that if a Contractor wants to be entitled to claim additional payment if unforeseen ground conditions are encountered, then it should ensure that wording to this effect is included in the contract.
In our scenario the Employer has not made any representations to the Contractor about the ground conditions. Additionally, the Contractor would have had an opportunity during contract negotiations to address sharing the risks of encountering unfavourable ground conditions with the Employer but did not do so. Accordingly, case law will not assist the Contractor’s position.
Other Options for the Employer
As the unstable ground has been discovered relatively early in the programme, and the project is otherwise progressing harmoniously, the Employer may consider it to be beneficial in the long run to engage with the Contractor to find an outcome that is acceptable for both parties. Such an approach may foster goodwill and so help improve future relations, and may lessen the likelihood of the Contractor unilaterally finding other ways to reduce costs (possibly to the detriment of the project) or accelerate the programme.
The Employer could, therefore, offer to assist the Contractor with the development of a new programme to reduce the impact of the expected delay, or with reviewing the design of the project to ascertain whether costs may be reduced in other areas without impacting the design intent or standard of construction.
Whatever steps the Employer chooses to take, it should take care not to inadvertently waive any of its contractual rights, and a record of all decisions (and the reasons for them) should be kept in case of a future dispute.
Top Tips for Employers
- Consider surveys and letters of reliance.
It is common for sellers of land to commission ground surveys so that informed decisions about the land can be made by potential buyers. Where such reports exist, purchasers (Employers) should consider obtaining letters of reliance so that they may rely on the contents of the reports as though they had commissioned them themselves. Similarly, if the Employer commissions a survey, a letter of reliance for the benefit of the Contractor could be considered.
- Ensure your contract documents do not contradict the risk allocation in your contract.
In Clancy Docwra Limited v E.ON Energy Solutions Limited, the parties had made bespoke amendments to their JCT contract, ostensibly passing the risk of ground conditions to the sub-contractor. However, the sub-contractor escaped liability for ground conditions subsequently encountered because of exclusions contained in tender documentation that had been appended to the contract; these documents defined the scope of the sub-contractor’s work, and it was held that the bespoke amendments allocating risk did not extend to any out-of-scope works.
As such, it is important to consider what documents have been incorporated into your contract, and what the effect of any incorporation is.
- Know your contract.
As ever, it is crucial to understand the parties’ rights and obligations under the contract and to administer the contract properly in accordance with its requirements (such as in respect of giving notice). If you choose for commercial reasons to take alternative steps, keep thorough records of the decisions made.
 (1892) HBC (4th ed), Vol 2 p.208
  66 Con LR 105 (CA)
  3124 (TCC)
Clare Mendelle is a Professional Support Lawyer and George Dale is a Solicitor at Sharpe Pritchard LLP.
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