August 1, 2016

Projects and construction law update

Please see below Clyde & Co's latest projects and construction law update - a regular review aimed at providing up-to-date information for those in the construction and infrastructure industry.

Industry News

Brexit: UK impact

For a consideration of contracting strategies following Brexit, click the articles below:

To read more about the broader impacts of Brexit, please visit our dedicated Brexit centre by clicking here.

Infrastructure Project Initiation Routemap expanded

The Infrastructure and Projects Authority (IPA) has added two new modules to its Project Initiation Routemap, which helps project sponsors and clients improve the delivery of major infrastructure projects. The new modules cover:

Asset management, with a focus on securing best value for taxpayers and investors through the life of a project

Risk management, aimed at identifying and mitigating risks that may prevent a project from meeting its objectives

The routemap, which can be found here, forms part of the government's National Infrastructure Delivery Plan.  The IPA plans to expand the routemap's scope to cover a wider range of major projects, with more construction projects being reviewed in this way.

National infrastructure assessment consultation

The National Infrastructure Commission (NIC) has launched a consultation on its process and methodology for producing a national infrastructure assessment (NIA).

The NIC is required to produce an NIA once every Parliament, setting out how the UK should meet its long-term infrastructure needs. NIC recommendations that the government accepts will become government policy and will be known as "endorsed recommendations". The NIC will have a duty to report annually on the government's progress in delivering endorsed recommendations.

Launch of revised adjudication pilot scheme for professional negligence claims

The adjudication pilot scheme for professional negligence claims was originally launched in February 2015 with a narrow remit, applying to claims against solicitors with a value below £100,000.  Following poor take up, the scheme has been relaunched, with the cap removed and the range of professionals to include all but medical professionals.

It is based on the statutory scheme for construction contracts, but differs in that the period for a decision has been extended to 56 days, and the parties may agree to allow the adjudicator to award parties' costs, as well as his own costs.

The scheme is voluntary, meaning both parties must agree in writing to use it.  A pilot pack has been prepared which provides guidance on the scheme and has been endorsed by Mrs Justice Carr and Mr Justice Fraser of the TCC.  Further details can be found here.

EPC: opt-out of public disclosure

The Department for Communities and Local Government (DCLG) is widening access to Energy Performance Certificate (EPC) data for domestic properties and Display Energy Certificate (DEC) data by permitting access on a bulk basis to anyone wishing to access the data, subject to the terms of a copyright notice.

Data about the energy performance of buildings is valuable to researchers, local authorities and environmental organisations involved in delivering national climate change objectives. The government believes making data about the energy performance of buildings more readily available is therefore in the public interest. (Currently, EPC and DEC information is available on an individual basis by reference to a property address. Access to bulk data is only open to a limited number of users.)

Data will be released on a six monthly basis and it will be possible to opt-out of future data releases even though information held prior to any opting-out may already have been released.

Commons briefing paper on infrastructure policy

The House of Commons Library has published a briefing paper on infrastructure policy, examining the government's approach to securing investment for UK infrastructure.

The briefing paper highlights an OECD estimate that developed countries need to invest 3.5% of GDP in infrastructure, whereas UK public sector investment will reach only 1.4% of GDP by 2020/21. The UK government plans to make up the shortfall through private investment, meaning that the private sector will provide 59% of infrastructure funding. The briefing paper identifies the means by which the government plans to achieve this, including:

  • The UK Guarantees scheme (UKGS), which provides government financial guarantees for money lent to fund infrastructure projects
  • Encouraging investment from pension funds through the Pensions Infrastructure Platform (PIP) (which seeks to help UK pension funds invest more in UK infrastructure assets) and British Wealth Funds (which will be formed by pooling local authority pension schemes)
  • The Green Investment Bank (GIB).

Events have since been overtaken by Brexit, so it seems likely that private investment may not materialise until the economic situation is more certain.  A copy of the paper may be found here.

PAS 2080:2016 Carbon management in infrastructure

Following a report, the Infrastructure Carbon Review, published by the Treasury in November 2013, it was recognised that the value chain in infrastructure projects had the potential to contribute and cooperate in in developing low carbon infrastructure.  The development of PAAS2080 is intended to realise this potential.

PAS 2080 provides a common framework for all infrastructure sectors and value chain members on how to manage whole life carbon when delivering infrastructure assets and programmes of work. Using PAS 2080 promotes reduced carbon, reduced cost infrastructure delivery, more collaborative ways of working and a culture of challenge in the infrastructure value chain through which innovation can be fostered.

Case law update

Recent decisions concerning: how EOTs should be applied to existing contract periods,  the effectiveness of anti-oral variation clauses; the relationship between adjudication and settlement agreements; whether a requirement for signature by both parties to a contract can be waived by conduct; an ECJ ruling on replacing a consortium member; more problems with payment schedules;

Volkerlaser Ltd v Nottingham City Council [2016] EWHC 1501 (TCC)

In Volkerlaser Ltd v Nottingham City Council [2016] EWHC 1501 (TCC), the contractor issued summary judgment proceedings for a 'technical' claim for payment which arose from the employer's failure to serve requisite payment or pay less notices.  These sorts of claim are more usually referred to adjudication.  The contractor Volkerlaser had been employed by the employer City Council to undertake works to a number of properties owned by the City Council.  The contract was based on a TPC2005, and ran for a term that expired on 31 March 2015.  Following the expiry of the term contract, in November 2015 the contractor applied for payment of certain works.  The contract payment terms provided that payment was to be applied for in the month that works were commenced or completed.  The judge therefore concluded that the payment application was not valid, as the works which were the subject of the application had been completed some months previously.  The judge also had to consider the timing of an application where the payment clause in the contract required the application to be made 'at the end of the month'.  Noting that the wording was imprecise, the judge did not accept that such wording limited an application to the last day of the month, but could be validly made if it was submitted shortly after the end of the month 'within three or four working days'.  Having found that the contractor's payment application was not validly submitted, the employer was granted permission to defend the claim.

Globe Motors Inc v TRW Lucas Variety Electric Steering Ltd [2016] EWCA Civ 396

In Globe Motors Inc v TRW Lucas Variety Electric Steering Ltd [2016] EWCA Civ 396, the Court of Appeal decided that inclusion of a clause intended to prevent variation of the contract other than in writing would not prevent future variation of a contract orally or by conduct.  The case concerned a long term contract for supply of certain products to the automotive industry.  TRW had agreed to purchase products from Globe, under a supply agreement which allowed for changes to be made to the products supplied.  It also included a clause that provided "It can only be amended by a written document which (i) specifically refers to the provision of this Agreement to be amended and (ii) is signed by both Parties." At first instance, the judge decided that TRW was in breach of the agreement for purchasing improved motors from another manufacturer which Globe could have supplied if engineering changes had been made.

On appeal, the court held that the definition of 'Product' did not include the improved motors, and TRW was not in breach by sourcing them from another manufacturer. The court decided that the agreement was structured so that TRW either had to agree a new Product, or it could propose engineering changes to existing Products, but was not obliged to do so. Although the court was not obliged to deal with the anti-oral variation provision, Beatson LJ made obiter comments designed to clarify the position, following existing conflicting decisions on the point, stating "The parties have freedom to agree whatever terms they choose to undertake, and can do so in a document, by word of mouth, or by conduct. The consequence in this context is that in principle the fact that the parties' contract contains a clause such as Article 6.3 does not prevent them from later making a new contract varying the contract by an oral agreement or by conduct." Beatson LJ acknowledged that difficulties of proof might arise whenever it was claimed that a contract had been made orally or by the conduct of the parties and the facts had to be determined by the trial judge from the evidence given by the parties and their witnesses. In such a case a variation should only be found where the evidence on the balance of probabilities established such variation was indeed concluded.  The comments reaffirm the principle of freedom to contract, but also highlight that attempts to limit the manner in which the parties may alter the contract may be insufficient to override the principle of party autonomy.  Accordingly,  if the parties intend to vary the contract, this should be properly documented to avoid the potential for disputes. To read more please click here.

J Murphy & Sons Ltd v W Maher and Sons Ltd [2016] EWHC 1148 (TCC)

In J Murphy & Sons Ltd v W Maher and Sons Ltd [2016] EWHC 1148 (TCC), the court granted declaratory relief for  a dispute to be decided by adjudication although a settlement agreement had been entered into.  Balfour Beatty engaged J Murphy to carry out shaft and tunnel work on a project at Trafford Park. J Murphy sub-subcontracted to W Maher the removal of spoil from site. The works order incorporated the NEC3 Subcontract. After works completed in September 2015, W Maher submitted a final account in the sum of £763k, with an outstanding balance of £297k.  The final account was discussed, and the parties reached an agreed value of £720k meaning a payment due to W Maher of £253k.  No payment was received, and in March 2016 J Murphy suggested it now valued W Maher's account at £483k.  The following month W Maher initiated adjudication proceedings. J Murphy raised a jurisdictional challenge, on the basis that the dispute arose under the alleged settlement agreement, and not under the sub-subcontract.  It sought declaratory relief from the court on that basis. The case was considered by Akenhead J, who summarised case law on the point.  He described J Murphy's case as "unmeritorious", going on to postulate that it would be 'far-fetched and unrealistic' to suggest that an agreement as to the value of an account could not be subsequently adjudicated because it had previously been settled.  He commented obiter (because he was not obliged to decide the point) that the agreement reached as to the value of the final account he would consider to be a variation to the contract as a means of resolving the claim.  It is clear that if parties enter into a settlement agreement, disputes arising under it may still be referred to adjudication unless express words are used to the contrary.  Unless the settlement is a full and final settlement of all claims under the contract, the courts will regard such an agreement as a variation to the underlying contract. To read more click here.

Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443

In Reveille Independent LLC v Anotech International (UK) Ltd [2016] EWCA Civ 443, the Court of Appeal considered whether a provision requiring both parties to sign a document for it to be legally binding could be waived by conduct.  Reveille had proffered a 'Deal Memo' which had to be signed by both parties to be binding. Anotech altered, signed and returned the document, thus making a counter-offer.  Anotech later sought to argue that no agreement was in place, because Reveille had not signed the amended document.  At first instance, the judge concluded that Reveille had not properly signed the Deal Memo, but had accepted by conduct the counter-offer in the amended document, a decision appealed by Anotech.  On Appeal, Mr Justice Cranston found that the Deal Memo amended by Anotech constituted a counter-offer which required acceptance. By not signing it, Reveille as offeree was waiving the proscribed method of acceptance.  As Anotech was receiving the benefit of Reveille's performance of the Deal Memo's terms, it was not in any way prejudiced by the waiver.  There was also clear evidence of Reveille's acceptance of the offer by conduct, of which Anotech was aware.  The court therefore decided that Reveille did waive the provision that there would be no binding contract in the absence of its signature on the Deal Memo. There was no prejudice from this to Anotech. There was acceptance by conduct on Reveille's part of the terms of the Deal Memo, leading to a binding contract.  Accordingly the appeal was dismissed. To read more please click here.

Case C-396/14 MT Højgaard A/S and Züblin A/S v Banedanmark

In Case C-396/14 MT Højgaard A/S and Züblin A/S v Banedanmark. the ECJ confirmed its interpretation of the rule on equal treatment in the context of procurement procedure.  The case involved a consortium bidding for the construction of a new railway line in Denmark.  The railway operator (Banedanmark) had commenced a negotiated procedure with certain pre-qualified consortia.  One of these comprised two corporate entities, one of which subsequently became insolvent.  The surviving consortium member, Per Aarsleff, decided to continue in the procurement process by itself, and was ultimately successful in winning the contract.  One of the unsuccessful consortia then commenced proceedings seeking an annulment of the contract award, on the basis that the procuring authority, Banedanmark, was in breach of the principles of fair treatment and transparency. The ECJ ruled that the principle of equal treatment, read together with Article 51 of Directive 2004/17/EC (the Utilities Directive) did not prohibit a contracting entity from permitting a member of a bidding consortium (which had been invited to tender), to replace that consortium (following its dissolution) and to tender alone in a negotiated procedure. However, in doing so the operator would have to meet all the bidding requirements and not put the other tenderers at a disadvantage.  The case was decided.  The Directive in question has now been repealed and replaced by Directive 2014/25, but the provisions contained in the new Directive are broadly the same, meaning the decision remains relevant. To read more please click here.

Bouygues (UK) Ltd v Febrey Structures Ltd [2016] EWHC 1333 (TCC)

In Bouygues (UK) Ltd v Febrey Structures Ltd [2016] EWHC 1333 (TCC) the court once again considered the impact of a payment schedule on a party's entitlement to payment.  Bouygues employed Febrey to construct a concrete frame and structural topping for a new building at the University of Bath.  The subcontract value was £626k and incorporated GC/Works subcontract terms, but the payment terms had been amended and referred to a payment schedule.  The schedule provided that final date for payment would be 21 days after the Main Contractor Assessment Date for 60% of the application, and 35 days after the Main Contractor Assessment Date for 40% of the application.  Works started in March 2015 and Febrey applied for monthly payments in accordance with the schedule. On 23 October 2015 Febrey applied for £123k.  This meant the due date was 16 November 2015, and the final date for payment of the initial 60% was 23 November 2015. The payment notice for the whole application also fell due on 23 November, but the payment schedule stated the payless notice for the 60% payment was due on 20 November. Bouygues served a payment notice on 23 November, stating that minus £2,041 was due.

No payless notice was served. Febrey argued that it was entitled to the full amount of its application as a payless notice should have been served on 20 November. Febrey referred the dispute to adjudication in January 2016, arguing that the schedule did not comply with the Construction Act because the payment notice was served more than 5 days after the due date. Bouygues accepted the schedule was non-compliant, but asserted that either the contract terms relating to payment should apply, or the Scheme.  The adjudicator found in favour of Febrey. On enforcement, Bouygues applied for declaratory relief, arguing that the contract terms should be preferred as they were Construction Act compliant; on this basis the payless notice was validly served.  Alternatively the schedule should be adjusted to make it compliant with the Act, meaning the date for the payless notice would be 3 December and it would have been served in time. The judge refused to grant the relief sought, finding that the parties had agreed a payment regime in the schedule, and had complied with it.  The reference to 20 November appeared to have been an error, but there was no room for an implied term which would be contrary to the express provisions of the payment schedule.  This is the second case this year where payment schedules have been strictly interpreted, and highlights the importance of getting these right. To read more please click here.