Risky Business: Don’t start work until you’ve finalised the contract

A new legal ruling is a stark warning to contractors about beginning work on a project without finalising the contract first, says a leading construction consultancy. 

MPG, which advises contractors, employers and project managers worldwide, says the industry should take note of the Court of Appeal decision. It reversed a previous decision on the dispute between AMEC and Arcadis, ruling that even though a contract hadn’t been completed, terms in a letter of instruction still applied. 

MPG’s managing director, Michael Gallucci, says: “In this particular case, it meant there was a legally-binding cap on the contractor’s liability, but the ruling means that any terms in a letter of instruction are binding until there is a finalised contract that specifies a different agreement.” 

Problems began when Arcadis was employed to design a car park and began work with only a letter of instruction from the employer, AMEC. It was planned that both would sign up to a detailed contract but it was not finalised. 

When it was discovered that the car park had to be rebuilt because of faults, Arcadis rejected claims that it was liable because of design error. It also said a cap on liability had been agreed at £610,000, compared with the £40 million cost of rebuilding the structure. 

When the case first came to the Technology and Construction Court, those claims were rejected, meaning Arcadis would be fully liable, but the Court of Appeal ruled otherwise. That was because even though the letter of instruction didn’t mention a liability cap, it alluded to pre-existing terms and conditions agreed between the two companies on another project, which did specify a cap. 

Michael sums up: “It’s often tempting to forge onwards with a project but contractors do so at their peril without a finalised contract in place. We would advise all parties to ensure that an adequate contract is concluded before work starts, and that the contractor has effective programmes in place to ensure that any claim that does arise can be resolved without the need to go to court. That might seem obvious but it is surprising how many projects go ahead without these fundamentals in place. It is one reason that the construction sector is beset by legal disputes, so contractors, employers and PMs involved with new projects all have a responsibility to ensure best practice is observed before work begins and throughout the lifetime of the project.” 

For more information, or advice on construction contracts, contact Michael Gallucci LLM MRICS MCIArb MAE, Managing Director, MPG, Email: michael.galucci@mpgqs.com 

Legal ruling highlights importance of preparation

Preparation is crucial when taking a construction dispute to court, a new legal ruling has underlined.

Construction consultancy MPG says the High Court decision should also serve as a reminder to contractors that they need effective programmes in place before commencing a contract in case there is a dispute in future.

The claimants in Clutterbuck and another v Cleghan lost because they failed to call an important witness, and the court refused to allow them to plug gaps in expert evidence at the last minute.

Michael Gallucci, managing director of MPG, said: “This is a wake-up call for anyone contemplating legal action, and their litigation team, that you must be fully prepared before you walk up the steps of the court building.”

Mr Gallucci, who advises leading construction companies and speaks internationally on contract law, said contractors must also prepare to protect themselves in the event of a dispute before even beginning work on a project. “Programmes are absolutely vital when claiming for delays or combating counter-claims,” he said. “They become yardsticks against which to measure the effects of delays, which are a frequent cause of disputes.”

An RICS accredited mediator, Mr Gallucci said too many property and construction disputes end up in court. “Instead of rushing headlong into what should be the last resort, the parties in a dispute should seek to resolve their problems through mediation, which is quicker and less expensive,” he said. “The Clutterbuck trial lasted 11 days in the High Court, no doubt racking up a big legal bill for the claimants who in the end walked away empty-handed. There is no way of knowing if they would have had a better outcome if they had settled by mediation, but in most cases, it is a better and less painful way to reach a conclusion.”

He added: “Settling out of court with the help of a qualified mediator can even mean that the parties don’t fall out irrevocably and can work together again. That’s rarely the case after an acrimonious court battle.”

Ten fatal errors to avoid with NEC construction and engineering contracts

Leading construction consultancy MPG has joined forces with award-winning law firm DAC Beachcroft to warn about deadly mistakes that contractors must avoid when using NEC contracts.

NEC contract templates are already widely used in the UK, from small procurement jobs to huge schemes such as the Olympic Park, and new templates in the latest version (NEC4) extend their use to new types of projects.

Their success is built on the efficiency of being able to use a ready-made and proven contract for project management and to define legal relationships. This is both more efficient and less expensive than writing a new contract from scratch.

But there are risks, which are highlighted by Michael Gallucci, managing director of MPG, and Michael Blackburne, a partner at DAC Beachcroft, in a new seminar being offered free to contractors, subcontractors, project managers, employers and other NEC users.

They have compiled this list of the top ten areas to focus on when using NEC contracts to avoid potentially catastrophic failures.

1.    Administrating the NEC

2.    Accepted programme and revisions

3.    Working areas

4.    Notifications

5.    Compensation events and time bars

6.    Early warning

7.    Defined costs, disallowed cost and defects

8.    Design – standard of care

9.    Completion

10. Compulsory adjudication

Michael Gallucci said: “With construction disputes on the rise, it’s obviously vital to have a suitable contract in place before embarking on a project. NEC is an excellent starting point, but it is crucial that contractors understand what they are getting into and manage the process properly.”

The seminar, which is offered free and on site at the contractor’s premises, also covers what it means for contractors to enter into an NEC contract and what they should be doing to ensure it works for them and not against them.

To book a seminar at your premises, email sarah.dexter@mpgqs.com

The seminar offers top tips for employers and project managers as well as covering how contracts should be administered and how to make claims through compensation events and early warning notices.

Key benefits of the new NEC4 contract suite are

  • Streamlined processes and updated definitions
  • Improved contract administration and reduce admin costs
  • Greater clarity and reduced potential for problems
  • Provision for BIM and early contractor involvement
  • Improved Risk Opportunity and Risk Management

There is more information at www.neccontract.com/About-NEC/NEC4-suite-of-contracts

MPG in the news

MPG has been hitting the headlines in recent months.

Our expert opinion pieces on two landmark court rulings were covered in print and online on channels including Audit & Risk, Business Link and CCR Magazine.

Meanwhile, the launch of our new report on Construction Claims and Defence made the pages of Project Manager Today.

You can download the report for free here.

For more information about the latest court rulings and other developments in construction, see our news section.