Can work be postponed indefinitely?

A recent judgment in the TCC found that an employer under a contract could rely on its terms to suspend the contractor’s works for an indefinite period of time without being in breach. The decision pivoted on the interpretation of the contract drafting, which parties might wish to consider when negotiating terms, or using or amending standard forms.

In the case, Grain Communications Limited v Shepherd Groundworks Limited [2024] EWHC 3067 (TCC), Grain employed Shepherd under a framework agreement, pursuant to which the parties could call off individual works packages.

One such work order was entered into on 7 September 2023. Local Authority permits were subsequently obtained to enable Shepherd to perform the works required by it. On 24 October 2023, shortly before works were due to commence (the night before), the parties spoke on the phone and Grain informed Shepherd that the works wouldn’t be starting the next day. Grain followed up by email in the early hours of the next morning, which said (paraphrased) “… it remains our current intention to continue with all Works Order signed between [us] …However … it currently does not look like we will be able to commence Works on Site in relation to [the Works Order in question] before the end of 2023 … We will continue to keep in touch with you regarding our programme for the Works under these Works Orders and will let you know when anything changes.”

Sometime later, in February 2024, Shepherd served notice purporting to suspend, and then terminate, its employment under the works order, on the basis that the correspondence amounted to a cancellation of the works order, in breach of contract. The court disagreed, relying on the definition of a variation under the terms of the works order, being “any addition to, omission from or other change in the Works or the period or order in which they are to be carried out” (emphasis added). It was held that the contract allowed Grain to vary the period in which the works were to be performed, which permitted it to postpone the commencement of the works – which was seemingly its intention by the content of its email.

The broad language of the variation definition enabled Grain to suspend the commencement of the works order without fixing a date in the future for them to start. Parties might want to consider whether that outcome would be their intention under their contracts, or whether to draft in express terms to place some constraints on what is allowable as a variation, or an acceptable period for any postponement.

The position under a JCT contract

Whilst this was a bespoke framework agreement, it’s worth looking briefly at some commonly used contract forms in the UK. The definition of a Change in the JCT Design & Build 2024 is narrower and refers only to the execution of works in a specific order (rather than the period in which they are to be carried out), but clause 3.10 gives the Employer the express right to instruct the postponement of work. 

Such an instruction would be a Relevant Event, and a Relevant Matter, entitling the Contractor to an extension of time for completion and to recover direct loss & expense. 

There is a “neutral” right for either party to terminate the contract if the postponement extends for a continuous period longer than the length stated in the Contract Particulars, but only if the postponement is issued as a result of the negligence of a Statutory Provider, and the termination in that circumstance would not entitle the Contractor to recover its direct loss and damage.

If that is not the reason for the postponement, then the Contractor would have to rely on its termination rights for an impediment or prevention by the Employer, where the Employer causes the whole or substantially the whole of the Works to be suspended for a continuous period of the length stated in the Contract Particulars – which could mean that the Contractor may be without the ability to terminate if only a small portion of the Works have been suspended in that way.

In each case the suspension of the works has to have been for a continuous period, and parties will need to consider what is an acceptable period (and keep in mind that if the Contract Particulars are not populated, the period defaults to two months).

The position under an NEC contract

Under the NEC4 Engineering and Construction Contract, the Project Manager has the power to instruct the Contractor to stop or not start any work. It must subsequently give a further instruction to re-start or start the work, or omit if from the Scope. The instruction to stop or not to start any part of the work is a compensation event, therefore potentially entitling the Contractor to additional time and money as a result. If the Project Manager does not give the subsequent further instruction within a period of 13 weeks, then either party can terminate the contract – and if the instruction to stop / not start was as a result of the Client’s default (but not otherwise), then the Contractor is entitled to recover its lost profit.  

Conclusion

This is an interesting case which pulls focus onto a right to pause the progress of works, and the consequences of doing so. Whilst commonly used standard form contracts may regulate the use of this right, this won’t always be the case with bespoke forms or amended standard forms and parties might want to bear this case in mind during negotiations.