To sign or not to sign? That is the question
9 June 2023
One of the most common questions construction lawyers get asked is, “How good is my case?”
Generally, the response from the lawyer always starts with, “Do you have a signed contract and what contract documents are included?”
This article focuses on two court cases that highlight why good contract management at the outset can give the client confidence that their contract is enforceable.
In Anchor 2020 Ltd vs Midas Construction Ltd , Anchor invited tenders to construct a retirement village based on an amended JCT D&B contract. Anchor 2020 Ltd (Anchor) accepted a tender from Midas Construction Ltd (Midas).
As part of the tender, Anchor asked bidders to submit a summary risk register so that potential risks were identified. Contingency costs were allocated to await further site surveys and design.
Anchor issued a letter of intent to Midas on 10 September 2013 as the parties were not able to agree the contract.
The Contract Sum Analysis and Contract Sum were agreed together with the schedule of amendments to the JCT D&B. Midas then put together a set of contract documents and issued a signed contract to Anchor on 21 July 2014.
Anchor noted that superseded documents had been included in the contract. Most importantly, the risk register had been included. Anchor disputed the inclusion of the risk register on the basis that the nature of design and build is that the contractor assumes all risk, whereas Midas countered that the register highlighted risks, which they confirmed were Anchor’s risks as client.
Anchor did not sign the contract. Midas progressed the works.
Anchor subsequently decided to accept the register being included and issued a set of signed contract documents. However, Midas had now decided that the risk register should not be included and notified Anchor that it wanted to hold further discussions on works costs as Midas wanted to recover additional costs to those set out in the risk register.
The works completed but disputes arose during agreement of the final account and Anchor went to court to determine preliminary issues. Anchor claimed that a binding contract was entered into on 21 July 2014. Midas countered that no binding contract had been entered into and that it should be reimbursed its costs on a quantum meruit basis.
The judge agreed with Anchor. He confirmed that the existence of a contract is a matter for the courts to decide objectively by considering the communications between the parties (words or conduct), whether they had agreed essential terms and if that lead to a conclusion that the parties intended to create a legal relationship.
The second case is Clancy Docrwa Ltd vs E.ON Energy Solutions Ltd , where the defendant (E.ON) subcontracted with the claimant (Clancy) on an amended JCT sub-contract for trench excavation works.
As part of its tender submission, Clancy set out certain conditions that were not included in its tender, including the risk of adverse ground conditions.
The amended JCT Sub-Contract defined the Sub-Contract Works as those works set out in the “Numbered Documents” attached to the Sub-Contract. These Numbered Documents incorporated Clancy’s tender submission (including the exclusions) and Post Tender meeting minutes (which also referred to same exclusions).
Adverse ground conditions were encountered. Clancy claimed additional costs that E.ON disputed. Whilst E.ON were successful at an initial adjudication, Clancy went to court to seek a declaration based on its understanding that it had excluded items in its tender.
At court, E.ON argued that under the JCT Sub-Contract in the event of any conflict between contract documents, the conditions of contract apply. In addition, the JCT Sub-Contract also contained a provision that Clancy were not entitled to any time extension or additional payment due to a failure to discover or foresee any risk or contingency including the existence of any adverse physical condition “influencing or affecting the Sub-Contract”.
However, E.ON lost at court. The judge held that the Numbered Documents contained Clancy’s tender submission and the Post Tender meeting minutes and that the definition of “Sub-Contract Works” therefore did not include the items excluded by Clancy. Therefore, the terms of the JCT Sub-Contract did not apply.
So unlike the position in Anchor 2020 vs Midas Construction, Clancy and E.ON had agreed the contract documents beforehand, and the contract was signed in advance of the Sub-Contract Works commencing. However, E.ON included documentation that set out Clancy’s exclusions to its offer (the tender). Therefore, an inherent conflict was incorporated.
What should a client do when preparing contracts after receiving tenders?
- Do not rely on contracts being based on communications between the parties as other points can be brought into play as part of any dispute, such as a party claiming that variations were agreed orally or at meetings. This in all likelihood will be to the disadvantage of the client.
- Do not leave contracts in the in-tray or take the view that agreement on documents means the hard bit is over.
- Ensure you are aware of what documents you are incorporating into the contract and their nature. Do not include all procurement documents simply in the belief that all bases must be covered. Procurement documents and tender responses should be analysed for inclusion and this process should start when the contract terms and conditions are chosen as part of the procurement strategy.
- Ensure contract documents are agreed, and the contract is signed by both parties, before works commence. The negative consequences of not doing so can be significant. Leverage to agree documents is lost and clients will find it difficult to remove a contractor from a site.
- Tender exclusions must be managed out before a contract is signed.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at June 2023.