Edition 2 2008

www.mills-reeve.com
Hot topics
Extensions of time-relevant
events and concurrent delay
Giving notice of delay
The RIBA forms of
appointment
whats changed?
Turbulence at
Terminal 5
Buildingblocks
2
Contents:
3 Hot topics
A brief summary of some
hot issues that may affect
you in the months to come.
4 Extensions of time-relevant
events and concurrent delay
A review and reminder of the
current law.
5 Giving notice of delay
What happens if notice
provisions are not
complied with?
6 The RIBA forms
of appointment
whats changed?
The changes introduced
by the new forms.
7 Turbulence at Terminal 5
How to avoid this happening
on your contract.
8 New appointments
Expansion of our
Birmingham team.
Welcome to the second edition of
Building Blocks for 2008.
As promised in the last edition, Stuart Pemble gives us a
detailed insight into the new suite of RIBA forms and what
he thinks about them.
This edition also contains two articles on extensions of time.
Paul Slinger reminds us what we need to know about them
and Ed Callaghan reports on giving notice of delay.
Finally, in addition to the usual Hot topics, Ruth Phillips gives
us a clear warning on how to avoid the problems experienced
at Heathrow Terminal 5.
On the horizon, and something to watch out for in the
future, is the fact that it has been confirmed that amendments
to the Construction Act will be made in this Parliament.
We will comment on this further in future editions.
Seminars
We have held, and are continuing to hold, a number of
seminars on construction and engineering issues across
our offices.
A highly successful seminar on NEC3 was held in our London
office on 23 April. This had already been held in Cambridge and
will be repeated in Birmingham on 15 October.
By the time you receive this edition of Building Blocks, we will
have held two further seminars: one in the Birmingham office
on 10 June covering adjudication and withholding notices and
one in the Cambridge office on 12 June looking at insolvency in
the construction industry. The seminar on insolvency in the
construction industry will be repeated on 3 July at 4.00 pm in
the London office.
We will also have a further seminar programme in the autumn,
details of which are included on the enclosed flyer. Details of all
our seminars are posted on our website (www.mills-reeve.com) .
If you are interested in attending any seminars or have any other
comments with regard to the content of Building Blocks please
feel free to contact me.
Alison Garrett
Editor
01223 222207
alison.garrett@mills-reeve.com
3
Andrew Lovell
01223 222564
andrew.lovell@mills-reeve.com
Hot topics
Duty to check employees
have the right to work
Since 29 February 2008 employers need
to take steps to ensure their employees
have the right to work in the UK.
A new penalty of up to 10,000 has been
introduced for those who negligently employ
workers in breach of immigration controls,
with a prison sentence of up to two years
and an unlimited fine reserved for employers
who knowingly flout the law.
Employers will need to check documents
of prospective employees to verify that
they have the right to work.
Employers who use sub-contractors or
agencies will not escape the requirements.
They need to be satisfied that the
sub-contractor or agency has considered
the documentation.
Migrant workers to pass
English language safety test
in order to gain CSCS card
Proposals are being suggested for the
introduction of a requirement for foreign
workers to pass a basic English language
test before they are awarded a Construction
Skills Certification Scheme (CSCS) card.
The test, which could come into effect
from September of this year, will be taken
together with the current touch-screen
health and safety exam that is already
required to get a CSCS card.
Challenging an adjudicators
decision
An adjudicators decision will only be
binding if they have jurisdiction to decide
the dispute.
In Harris Calnan Construction Co Ltd v
Ridgewood (Kensington) Ltd (2007),
Ridgewood challenged the adjudicators
decision on the grounds that there was no
contract in writing. The adjudicator decided
that there was and made an award in Harris
Calnans favour.
The court decided that if Ridgewoods
position was reserved and it made it clear
that it did not agree to the adjudicator
having jurisdiction then it would not be
bound by the decision.
Despite the fact that Ridgewood had initially
argued that the adjudicator did not have
jurisdiction and had put these arguments
in writing, the court held that Ridgewood
had failed to reserve its position throughout
the adjudication.
The lesson of this is that, if challenging the
jurisdiction of an adjudicator, it is essential
that the jurisdictional arguments are
maintained throughout the adjudication.
Principal contractor
On 6 April 2008, the Site Waste Management
Plans (SWMP) Regulations 2007 came into
force. The regulations require appropriate
persons to prepare and implement an SWMP
for works. These regulations refer to a
principal contractor who has a duty to
record, among other things, the identity of
the contractor removing the waste, the types
of waste removed, the site to which waste is
taken and to confirm that the plan has been
monitored regularly.
This term principal contractor is of course
also used in the Construction (Design and
Management) (CDM) Regulations 2007. The
dual use of the term may well cause confusion
between a principal contractors role as the
person responsible for health and safety on site
and the principal contractors role as the person
recording the management of waste.
Mediation
On 23 April, the European Parliament adopted
a directive on mediation. Each member state
must legislate on this within three years.
Key elements include:
voluntary codes of conduct;
judges may invite parties to attempt
mediation;
mediated agreements may be given similar
status to court judgments to aid
enforcement;
mediation documents may not be used in
legal proceedings and mediators may not
be compelled to testify; and
claims will not be statute-barred through
time spent on mediation.
4
A striking feature of construction projects
is the number that suffer from delay,
sometimes huge delay. Most notable
recent examples include the late
completion of both the Scottish
Parliament and Wembley Stadium.
As a follow on from the article on liquidated
damages in the last edition of Building
Blocks, in this issue we look at extensions
of time, a contractual tool used by contractors
in the event of delay to push back the
previously agreed completion date which,
by doing so, avoids the contractor incurring
liquidated damages for the period of delay.
In many circumstances, it will be agreed
that the contractor is entitled to an
extension of time but disputes about
entitlement and the period of any
entitlement remain very common.
Important points to note in relation to a
contractors entitlement to an extension
are detailed below:
The delay event must be one that the
employer has assumed the risk and
responsibility for (a relevant event).
The relevant events are listed in many
standard forms of contract and should
always be agreed between the parties
prior to entering into the contract.
It is not necessary for the relevant event
to have begun in order to claim an
extension of time. A contractor can, and
indeed should, notify the employer of
an anticipated delay as soon as it appears
reasonably likely to occur. The period
awarded can be calculated on an
incremental basis but contracts rarely
allow a period already awarded to be
subsequently reduced.
The extension of time process usually
follows quite strict notice provisions.
The contract will often require the
contractor to mitigate the effects of any
delay but this does not mean that the
contractor needs to add extra resources
or increase its working hours. Instead, it
must take reasonable steps to minimise
the loss and must not take unreasonable
steps that increase its loss.
Having a mechanism by which the
contract completion date can be extended
(and indeed using it properly) is important
for the employer, not just the contractor.
In the absence of such a mechanism,
where there is a relevant event, the new
completion date cannot be established,
which leads to time being at large. In
other words, the contractor need only
finish in a reasonable time, which is
rarely in the employers best interests.
How then is an extension of
time calculated?
There are numerous methods of varying
complexity but, in order to be convincing,
the contractors claim or the employers
challenge to the claim should be founded
on established facts, be logical, easy to
follow and lead to common sense conclusions.
Often the facts are in dispute, so good
contemporaneous record keeping and
regular programme updating are key.
Concurrent delay
Calculation of time becomes difficult
where the contractor and the employer
are both in delay, ie, there is concurrent
delay. Beware, the approach of the
courts in such circumstances is currently
unpredictable and dependent upon the
individual facts of the case, as the two
most recent cases illustrate.
It was held in the 1999 case of Henry
Boot v Malmaison that, where the
contract does not deal with concurrent
delay, then in the event of such delay
the contractor is entitled to an extension
of time.
More recently, however, the Scottish
case of City Inn v Shepherd held that:
...where there is a true concurrency
between a relevant event and a
contractor default, in the sense that
both existed simultaneously, regardless
of which started first it may be appropriate
to apportion responsibility for the delay
between the two causes, obviously the
basis for such apportionment must be
fair and reasonable.
To avoid any such confusion, this issue
should be addressed in the contract.
Conclusion
The law in this area is currently littered
with words such as reasonable,
common sense and dependent on the
facts and, if potentially costly disputes
are to be avoided, there must be proper
and timely consideration and discussion
about claimed delay events.
Extensions of
time-relevant
events and
concurrent delay
Paul Slinger
0121 456 8385
paul.slinger@mills-reeve.com
5
In his article in this issue, Paul Slinger mentions
the importance for both employer and
contractor of having a mechanism by which
the contract completion date can be extended
in the event of employer-risk delay, and
that the process usually has quite strict
notice provisions.
But what happens if the notice provisions
for an extension to the contract completion
date have not been complied with? The
answer depends on whether the provision
is a condition precedent. If it is, then
the contractor may lose his right to an
extension of time if he fails to give notice.
Thus NEC3 says:
if the contractor does not notify a
compensation event within eight weeks
of becoming aware of the event, he is not
entitled to a change in the completion
date
But JCT 2005 is less fussy:
If and whenever it becomes reasonably
apparent that the progress of the works
is being or is likely to be delayed the
contractor shall forthwith give written
notice
JCT 2005 has no actual time limits for giving
notice and does not say the contractor will
lose his right to an extension if he does not
notify.
The courts have not so far said that this is a
condition precedent, but Judge Stephen
Davies in Birmingham recently came a step
closer.
In Steria Ltd v Sigma Wireless Communications
Ltd, the sub-contract allowed for an extension
"provided the sub-contractor shall have given
within a reasonable period written notice to
the contractor of the circumstances giving rise
to the delay".
The contractor, Sigma, said that the word
provided meant it was a condition
precedent. Their sub-contractor, Steria, said
there was no actual time limit and no
statement that the contractor would lose his
right. Clearer words were needed to do that.
The judge agreed with Sigma. It was not
necessary to say expressly that the right
would be lost if notice were not given.
He said:
in my judgment the phrase provided
that the sub-contractor shall have given
within a reasonable period written notice
to the contractor of the circumstances
giving rise to the delay is clear in its
meaning. What the sub-contractor is
required to do is give written notice
within a reasonable period from when
he is delayed the real issue which is
raised on the wording of this clause is
whether those clear words by themselves
suffice, or whether the clause also needs to
include some express statement to the
effect that unless written notice is given
within a reasonable time the sub-contractor
will not be entitled to an extension of
time. In my judgment a further express
statement of that kind is not necessary. I
consider that a notification requirement
may, and in this case does, operate as a
condition precedent even though it does
not contain an express warning as to
the consequence of non-compliance.
Giving notice of delay
Ed Callaghan
01223 222242
ed.callaghan@mills-reeve.com
The most obvious change is that the two
clauses criticised back in 2005 by the High
Court in Munkenbeck and Marshall v
Harold have been changed:
the client no longer has to pay the
architects legal costs on an indemnity
basis where the client is unsuccessful
in a dispute; and
the default interest rate for late
payment has been reduced from 8 per
cent over Bank of England base rate
to 5 per cent.
Removing the indemnity cost provision
was an essential change. Normally,
unsuccessful parties only have to pay
indemnity costs where they have behaved
particularly badly during the litigation or
failed to beat a Part 36 offer. The default
assumption in the old forms that the client
would have to pay indemnity costs (but
that the architect would not) was, on any
objective analysis, an unfair position for
RIBA to adopt.
Another key change is in the duty of care
clause. After standard wording setting out
the duty of care itself, the clause then sets
out some more detailed obligations. The
key one is an obligation to perform the
services in accordance with the clients
brief. Which sounds sensible why would
an architect want to design a building
that wasnt what the client wanted? The
problem is that the obligation only bites
so far as reasonably practicable. This
seems an odd phrase for RIBA to insert.
If its no longer practicable to design
what the client wants, why should the
project continue?
The third big change is in the section
dealing with limitations on liability. RIBA
now acknowledges that there does
not have to be a net contribution clause,
preferring instead to have an overall
cap on liability. This seems a sensible
compromise. Most architects these days
trade as limited companies or LLPs. In
practice, they will have very few assets
apart from their issued share capital (or
equity investment from their members
in the case of an LLP) and the businesss
balance sheet. In that context, most
damages claims will be paid by the
architects PI insurance. Once thats been
exhausted, there may be little left worth
suing. A client insisting on unlimited
liability (and some do) may end up with
the most pyrrhic of victories. There is a
slight catch clients will need to amend
the project data to ensure that the net
contribution clause is deleted.
A lot of the remainder of the form can
be contentious depending on whose
interest you are trying to protect. Perhaps
the most significant area of potential
dispute is the exclusion of the clients
rights of common law set-off. This is of
most significance where the client has
employed the architect on a number of
projects. Without the exclusion, a client
would be able to use damages it was
owed by the architect for negligence on
one project to reduce the fees properly
payable under another. RIBA considers this
an unfair abuse of the payment regime
which is why it excludes the right of set-
off. Clients may, of course, wonder why
rights that everyone enjoys as a matter of
common law are excluded when they are
dealing with architects.
6
The RIBA forms of appointment
whats changed?
Stuart Pemble
0121 456 8335
stuart.pemble@mills-reeve.com
In the last issue of Building Blocks, I discussed the furore surrounding the new RIBA forms. This article
concentrates on the three key changes to the main form now called CA-S-07-A which has replaced
both SFA/99 and CE/99.
Removing the indemnity cost
provision was an essential
change
Another key change is in the
duty of care clause
Perhaps the most significant
area of potential dispute is
the exclusion of the client's
right of common law set-off
7
The opening of BAAs new 4.3 billion
flagship terminal at Gatwick on 27 March
2008 has been described as shambolic
and disastrous, with the cost to British
Airways currently estimated to be 25
million. Beyond the finger pointing currently
taking place, it is crucial that lessons are
learnt from what has happened. From a
construction point of view, the most
important lesson seems to be the most
practical. If works are not complete, even if
there are external pressures to keep to a set
deadline, completion should not be certified.
Since events unfolded, commentators have
been attempting to piece together the chain
of events that brought Terminal 5 to a
complete standstill.
British Airwayss chief executive, Willie Walsh,
has admitted that the opening was not our
finest hour and two directors of British
Airways parted ways with the company in
the weeks following the opening.
At the Transport Select Committee (TSC)
hearing held on 7 May 2008, Mr Walsh cited
incomplete building works as one of the
major factors in the fiasco and stated that
he was aware of these issues as early as
17 September 2007 (the completion date for
the project).
The list of incomplete building works
included:
28 lifts not working;
software glitches in the baggage handling
system; and
problems with air bridge jetties.
All of these incomplete works beg the
question why was completion certified?
Signs were already emerging that all was not
well before the events of 27 March unfolded.
It was reported in the press less than a
month before the official opening by the
Queen that the new terminal was still not
finished, with delays in carrying out vital
mechanical and electrical work.
In an interview for Dispatches, BAA's director
of corporate communications, Tom Kelly,
admitted that the company has requested
the suspension of the Civil Aviation
Authorities mandated service quality
rebate regime. The effect of the regime is to
fine Heathrow if it misses targets set out for
security queues and the availability of lifts
and escalators. Asked why, Tom Kelly stated:
It's a reflection of reality. There will
inevitably be teething problems around the
introduction of Terminal 5. I think people
will be impressed, but it's a matter for them
to judge.
Perhaps the reasons for practical completion
being agreed were skirted over in the TSC
evidence session. The TSC picked up in the
session on the issue of the services quality
rebate regulation and questioned the effect
the regime had on ensuring that Terminal 5
opened as planned on 27 March even though
there were still obvious problems that
needed ironing out. Both BAA and BA were
said to have been diplomatic in their response.
But the point remains that the purpose
completion is that the building must be
practically complete. If it is not, then
completion should not be certified. If the
works are not complete when completion
is certified then the employer is simply
storing up problems for the future. In most
standard forms of building contract, and
indeed in most bespoke contracts as well,
the contractor has limited responsibility
after practical completion. Normally, it
can reasonably argue that once practical
completion has occured it is only required
to address either snagging or latent defects,
ie, defects that become apparent after
practical completion. It can quite legitimately
say that if works, other than snagging, were
not complete or were defective then
completion should not have been certified.
Turbulence at Terminal 5
Ruth Phillips
0121 456 8211
ruth.phillips@mills-reeve.com
www.mills-reeve.com
Telephone: 0844 561 0011
B I R M I N G H A M C A M B R I D G E L E E D S L O N D O N M A N C H E S T E R N O R W I C H
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The articles featured in this publication have been selected and prepared with a view to disseminating key information.
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June 2008
New appointments
Mills & Reeve's Birmingham construction team, from left to right: Stuart Pemble, Martino Giaquinto, Ruth Phillips, Robbie Turner, Melanie Parker,
Paul Slinger and Albert Oh.
Our engineering and construction team
has been strengthened in Birmingham
with the promotion of Martino Giaquinto
to partner and the appointment of two
solicitors: Albert Oh, who joined us in
March, and Melanie Parker, who will
qualify with us in September.
Martino joined Mills & Reeve in 2005
to lead the disputes resolution team in
Birmingham after a number of years as
a senior associate at Wragge & Co.
He has extensive experience acting for
employers, contractors, sub-contractors
and consultants on construction and
engineering disputes up to 100 million.
As a barrister and solicitor-advocate, he
will support the teams focus on private
sector businesses.
Albert is a solicitor who joined us from
DLA Piper. He has advised on construction
and engineering-related disputes in
England and Malaysia for a number
of years and has broad experience of
construction claims and dispute resolution.
When Melanie, who is currently training
with us, qualifies in September this will
bring the total number of specialist
construction lawyers across our offices
to 14.