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11 Jan 2019

The risks of allowing pre-contractual documentation to be appended to the contract

by Mark Woodward-Smith, Group Managing Director -

The recent case of Clancy Docwra Limited v E.ON Energy Solutions Limited , decided by the Technology and Construction Court, emphasises the risks of allowing pre-contract documentation to be appended to the final execution of the contractual document.

The Claimant, Clancy Docwra Limited (“Sub- Contractor”), was engaged by the Defendant, E.ON Energy Solutions Limited (“Contractor”), to excavate pipe trenches in a residential development.

After approximately a year and a half into the contract, the Contractor hardened its approach towards the assessment of the impact of obstructions encountered by the Sub-Contractor whilst excavating the trenches.

A dispute crystallised in respect of these obstructions after the Sub-Contractor refused to accept the obligation to work around a concrete heading it encountered within its excavations. The Sub-Contractor referred the matter to adjudication but the Adjudictor decided the dispute in the Contractor’s favour.

Subsequently, the Contractor sought a declaration from the TCC to clarify its Scope of Works.

Background
The terms of engagement were a JCT Standard Building Subcontract with Sub-Contractor’s Design (2011), but with bespoke amendments such that the Sub-Contractor did not actually have any design obligations. At Clause 1.1, the Sub-Contract Works were defined as:

“the works referred to in the Sub-Contract Agreement and described in the Numbered Documents…”.

At Clause 1.3 (headed “Sub-Contract to be read as a whole”), it provided at sub-clause 1.3.5:

“if there is any inconsistency between the Sub-Contract Documents (other than the Numbered Documents) and the Numbered Documents (excluding the Schedule of Modifications (if any)), those Sub-Contract Documents shall prevail”

The Sub-Contractor relied on post-tender clarifications by way of the “Numbered Documents” which were incorporated into the Sub-Contract, confirming that it had effectively priced for a clear and unrestricted corridor as per the route identified on the drawings.

Conversely, the Contractor relied on the bespoke amendments of Clauses 2.1.7 to 2.1.9 of the Sub-Contract, effectively stating that the Sub-Contractor carries the risk associated with obstructions and the existing ground conditions.

As such, the Sub-contractor’s reliance was weighted towards the “Numbered Documents” whereas the Contractor relied on the “Sub-Contract Documents”.
The Sub-Contractor argued that the provisions in the “Numbered Documents” were more specific than the broad allocation of risk provisions contained within the additional clauses of the “Sub-Contract Documents” and therefore the more specific provisions should prevail.

Court Ruling
Jefford J found in favour of the Sub-Contractor on the basis that, in the present case, there was no contradiction between the Numbered Documents and the Sub-Contract Documents as the “works did not include the matters that were specifically excluded by them from their scope of works as set out in their tender submissions and the Post Tender Minutes”

The Scope of Works as described in the tender enquiry, and on a plain reading, anticipated that exclusions and risk deviations may apply. On the issues of a plain reading, the Court referred to Arnold v Britton per Lord Neuberger and Wood v Capita Insurance Services per Lord Hodge for guidance on contractual interpretation.

Summary
So, what are some of the lessons to be learned by contractors (or drafting parties) from this matter?

If the drafting party wishes to allocate risk unequivocally, it must ensure that there are no contrary documents bound into the contract.
Alternatively, if it is unavoidable that contrary documents are bound into the contract, then it must ensure that there is clear wording to nullify these in part or in full where that is the intention. An agreement to pay less money or the same money later constitutes consideration

2. General contract provisions are required to be made more precise and robust if the intention is to address other more specific and precise concerns. Unless clearly worded, general contract provisions will not serve to extend a priced scope of works that contain specific exclusions merely because they fall at the front end of the contract document or in what is thought to be a more logical place.

3. A clear definition of the scope of works is critical to defining a party’s obligation, and it is important to ensure that this is not subject to contractual interpretation (i.e. avoid having a muddle of documents which are not dovetailed);

4. When assessing the price for the works or allocation of risk, if the intention is that these two aspects are totally divorced from one another, then this must be made clear in the contract documents to avoid possible interpretation to the contrary;

5. Where one company’s bid price falls well below its competitors, all clarifications, qualifications and exclusions must be properly understood and addressed to help avoid unnecessary surprises down the line;

6. If a variation clause is to exclude certain works, items or activities because, for example, these are deemed to be included within the prices; then it may be worth considering appropriate wording to make those parameters crystal clear;

7. From an ethical perspective, but also to avoid being caught off-guard, if you know the party you are contracting with has made specific exclusions, it is probably better to address such matters head-on rather than trying to cover this up or trip them up with “clever” contract wording; and

8. The use of skilled commercial (& technical) resources to assist in the review of contract bids may help to avoid such similar situations from reoccurring in the future.

To download a PDF version of Mark’s article please click the link here: The risks of allowing pre-contractual documentation to be appended to the contract

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