Sectional Sub-Contracts – Reading between the lines

In the recent judgement in Vinci Construction UK Limited and Beumer Group UK Limited it was argued, under a contract which had been divided into sections, that the delay damages were ‘uncertain, inoperable and unenforceable’ and that therefore the remedy for late performance was not available.  The Court took a very robust stance in finding that for a contract term to be rendered uncertain it has to be legally or practically impossible to give the parties’ agreement any sensible intent, say where it is unsafe to prefer one possible meaning to other equally possible meanings.  It found that in this instance the intent of the parties was clear as to what work scope was included in which contract section and that therefore the delay damages were recoverable and the arguments as to unenforceability failed.

It is not uncommon for arguments of this kind to be run and the reason for this is that the division of the Contract Works into sections is rarely done well and frequently it is done appallingly badly.  The methodology that the Court ran in this case, as with the general approach to interpretation of contracts, was to give the words that the parties had used their ‘natural and ordinary meaning’ as would be understood by a ‘reasonable person’.  This is good news then, since most contracts are put together by ‘reasonable’ people with an ordinary understanding of their own language, so where is the problem?

The intention of a dividing the Contract Works up into sections is to create discrete mini-contracts, with their own value, commencement & completion dates and delay damages to enable delivery of the overall project to be achieved in a logical fashion.  This may be driven by when parts of the works may become available (e.g. where an existing building cannot be vacated until replacement accommodation is available) or site constraints, procurement strategies, end user occupation & fit out requirements or any number of other criteria.

In order to avoid even the merest hint of a cry of ‘uncertainty’ it is essential that each section is defined with clarity and is truly capable of being progressed and completed independently of other sections.  Where there is an element of the project which is common to other parts, such as say an energy centre serving several separate blocks, then this common part should be created as a separate section on its own.  Difficulties often arise in multi-occupancy buildings where it is intended that completion will be achieve in horizontal slices (or other sub-divisions) created as sections.  In such instances careful consideration needs to be given to dealing with interfaces between the horizontal sections, the external envelope to the building, services distributions and other building elements which do not run with the sections.

Contract documentation is often layered, with inter-related & interdependent documents being compiled to describe the work scope and to define the parties’ respective rights and obligations – this can be the enemy of clarity.

The creation of clear, workable sub-contracts for specialists engaged on sectional contracts adds an additional level of complexity.  This can be graduated progressively along the following scale:

• Non-sectionalized sub-contract works within a sectionalized main contract. This would normally mean that the sub-contract works will float within the main contract section to which it relates as in any usual sub-contracting arrangement provided that the main contract works themselves have been properly sectionalized and defined.

• A sectionalized sub-contract mirroring the sectionalized main contract. In this scenario the adequacy of definition of both the main and sub-contract works is critical and the inter-action of change and delay events may add an administrative burden.

• A sectionalized sub-contract mirroring the sectionalized main contract, with key dates and/or milestones. It is not uncommon for main contractors to impose key or milestone dates defining when a particular state or condition is required to be achieved.  When combined with obligations to progress and complete the sub-contract works within sections within main contract sections the opportunity for chaos & confusion is exponentially increased.

Where it is either necessary or desirable to sub-divide the Contract Work Scope into sections, spend time with that reasonable person to see whether his ‘natural and ordinary’ understanding of what you are trying to describe is the same as your own.

Is the work section defined between the lines? On the lines?  Be clear in the definition at the out-set – it may save a lot of time and cost in the long run.

Jason Farnell FRICS FCIArb Dip Adjudication