20070727 "You Bought It, You Pay For It"

Question: When does a main contractor have to pay a subcontractor for work that it hasn’t done? Answer: When it agreed a fixed-price lump sum contract based on issued drawings …

“Judges are handicapped, disabled, fettered. The judge is chained, locked fast, to a sort of wobbly jelly sitting on a jardinière – the contract”

I bet many a main contractor and subcontractor will think this Court of Appeal decision is a bit queer. I bet many a construction lawyer will think it is not queer at all – even obviously right. Here’s the story.

P&I, the main contractor on the mammoth GlaxoSmithKline site in Stevenage, sent out drawings and specifications for pricing to the subcontractor, SWI. Back came a quotation to carry out the works for £337,243 “as detailed on the tender record sheets and your issued drawings”. The tender record sheets didn’t say much – it was the drawings that said what was what. P&I issued a purchase order for the work, as per the drawings, for the quoted sum. A contract was born. The work was done; there were no sign of a quarrel. In came the final account at the purchase order price.

Now, I confess to making a guess. My guess is that the main contractor’s QS threw a tape over the completed works and found its value was less than specified on the drawings. He valued that “less amount” at £40,000 and lopped that off the bill.

Can you see what is coming? The subcontractor sued for the full sum and the Luton county court judge ruled in its favour. Yes, the amount of work was less than on the drawings but the judge said it didn’t matter.

What do you think? Queer? I tell you why you’re flummoxed. It is because you’ve been brought up in a time where work was “subject to remeasurement upon completion”. Often, some joker sends out a bundle of 1:100 scale drawings leaving the bidder to scale his own quantities and do a bit of guessing here and there about the extent of the works. So the easiest way is to meet up at the end and bung a tape over the finished job. Then the account is adjusted up or down after the odd difference of opinion.

So, the first judge told the main contractor that its claim for a reduction had failed. Irked, the contractor went to the heavyweight three-man Court of Appeal. The three senior judges there said the same thing. So, there we are: four judges to nil in favour of paying the purchase order sum, despite there being less actual work.

Let me explain something. Judges are handicapped, disabled, fettered. The judge is chained, locked fast, to a sort of wobbly jelly sitting on a jardinière – the contract. The wobbly jelly is a pot-pourri of agreements between the contracting parties. All the judge can do is interpret it. True, the counsel will argue that the wobbly jelly contains this or that agreement, and I bet that all four judges know full well that our industry “re-measures” completed works all the time, but if the court can’t find such an agreement in the wobbly jelly, heigh-ho, that’s that.

The work on the drawings had been priced at £337,243. The subcontractor had done what the drawings required. Job done. Pay up. It was what I will call a “lump-sum fixed price”. That means the subcontractor took on the risk of completing all necessary work. Technically, the everyday JCT building contract document is also a lump-sum fixed price but it contains sophisticated variations machinery that deals with changes of all sorts and a price adjustment.

As for “re-measurable contracts” the work content is only “estimated” at the start. Then it is installed and measured and paid at rates set by the contract bumf. But this SWI and P&I contract at Stevenage had none of this. It looks like their deal contained nothing about variations or changes. And I tell you that there is quite a lot of wobbly jellies that are lump-sum fixed price deals.

The party that has to do the work has plainly agreed to provide all it takes to do that work including plant, equipment, widgets, wigglepins and labour. The party that provided the drawings has to risk them being wrong. There is no clawback for work not required. And if the drawings did not show all the work, what then? The risk stays with the party that provided them. And, if £40,000 more work is required, and if the subcontractor agrees to do it, the £40,000 is payable on top.

That last comment is precisely what you would expect. But the loss of the saving is something of surprise. Except to the four judges and most lawyers.

Readers are invited to forward recent judgments for reporting in this column (with full acknowledgement) to: Tony Bingham, 3 Paper Buildings, Temple, London EC4Y 7EU. DX: 37164 Biggleswade

You bought it, you pay for it