It has long been established that where a party to a construction contract omits work under the contract to give to another party this will in most circumstances constitute a breach of contract. This is because:
- Under the construction contract the party carrying out the works not only has an obligation to carry out the work in the contract but they also have the right to carry out the work they were contracted to do.
- A variation clause allowing works to be omitted has to be carefully drafted so as not to remove the contractor's right to complete the work.
- Express wording is generally needed to allow works to be omitted from one contractor to give it to another.
The Court of Session has recently had to consider the issue of omitted works under an NEC3 contract. This is novel in itself as there are not many legal authorities relating to the NEC form of Contract.
In this case the Contractor sub-contracted certain works. The subcontract was based on the NEC3 Sub-Contract conditions. The Contractor instructed the omission of work falling within the scope of the Sub-Contract and transferred that work to one of two other sub-contractors.
Clause 14.3 of the Sub-Contract allowed the Contractor to give an instruction to the Sub-Contractor which changed the works, and that "in the event that a corresponding instruction is issued by the Project Manager under clause 14.3 of the Main Contract only […] omit (a) any Provisional Sum and/or (b) any other work, even if it is intended that such work will be executed by Others."
The Project Manager under the Main Contract had not however issued a corresponding instruction to omit the works and the court therefore found that there was no contractual right to omit works and give them to another sub-contractor. As such the Main Contractor was in breach of contract. There is nothing surprising or new about the court's decision in this regard.
However, the court went on to clarify that even although the instructions to omit works were a breach of contract, they were still valid instructions under the contract and, as such, should be assessed in accordance with the NEC3 compensation event mechanism. For the sub-contractor this meant that the Defined Cost was reduced and resulted in a reduced amount being paid to them for the work remaining to be done.
This case is a useful reminder that express contractual drafting is needed to omit works and give those works to another party. It also is a word of warning for Sub-Contractors as it could leave them at a financial disadvantage depending on the variation or compensation event mechanism in their contract.
At Morton Fraser we understand the need to bring clarity to the drafting of contracts to aid the interpretation of contracts when construction claims arise. We have a large and experienced construction team who regularly deal with the drafting of contracts and disputes and we would be happy to discuss any issues you have in respect of your construction contract.
