Common issues and questions from clients...

Over the years, we have helped clients resolve a variety of issues and problems. Our extensive experience has enabled us to produce the following list of pertinent questions and answers:

1. Can a client deduct liquidated damages if they have not incurred a loss?

Yes, provided the amount stipulated for liquidated damages was a genuine pre-estimate of the client’s loss. The genuine purpose must not be to penalise the contractor but rather be to compensate the employer. The actual damage need not be proved and it does not matter that the actual loss is greater or less that the stipulated sum.

2. What is the difference between abatement and set-off?

Abatement is the process of reducing a price or value, for example when a valuation is reduced to take account for work not properly carried out, completed, or not undertaken at all. Set-off is a defence to a claim used to reduce or extinguish a claim. Of note is that by virtue of s.111 of the Housing Grants, Construction and Regeneration Act 1996 (as amended) a party’s right to set-off is excluded where that party has not issued the requisite withholding notice at the proper time.

3. We are employed under a Sub-Contract and have been accused of having committed a repudiatory breach. What is this?

Under a contract, when one of the contracting parties indicates that he is unwilling to carry out his obligations at a time before such obligation has arisen, this represent an anticipatory breach of contract. Such breaches of contract may range form a minor failure to a complete refusal by one party to carry out any of its obligations. Depending on the nature of the breach it may amount to a repudiation of the Contract. In such circumstances a party can elect to accept the repudiation and immediately seek damages or alternatively he may wait until the actual time for performance and then seek damages.

4. What is the difference between documents executed under hand or under seal with regard to the limitation period?

Under the Limitation Act 1980 the limitation period for contracts executed under seal (or by deed) is 12 years as opposed to six years for simple contracts (ie. Underhand and simply signed).

5. We are working on a JCT Contracts and the Architect has accused us of not using our best endeavours. What is required for a contractor to have satisfied this obligation?

In this context, the Contractor must do everything reasonably practical to prevent delay, short of incurring substantial additional expenditure.

6. I ’m involved in an arbitration and I’ve been advised to make a Calderbank offer. What is it?

In arbitration, it is an offer to settle made ‘without prejudice save as to costs’after the case of Calderbank v. Calderbank [1975] 3 All ER 333. The Arbitrator is not to be made aware of the offer until he has issued his award on all matters with the exception of costs. When deciding costs the Arbitrator may treat the offer as having the same effect as a payment into court. The offer must:

• be open for acceptance for 21 days
• include for payment of the other party’s reasonable costs incurred up to date of acceptance if accepted within 21 days. Thereafter, any acceptance of the offer is subject to the offeror’s costs being paid after the expiry of the 21 days.
• deal with the matter of interest. Interest is normally included.
• state whether any counterclaim is taken into account in the offer.

7. What is a condition subsequent?

A condition subsequent is a term which brings to an end the rights of the parties upon the happening of an event, for example a contract clause providing for termination in the case of bankruptcy.

8. How do I claim for constructive acceleration?

A claim for constructive acceleration is usually based on the premise that a contractor is entitled to an extension of time but which the Architect wrongfully refuses to grant and who thereby exhorts the contractor to finish on the completion date to avoid having to pay liquidated damages. This is, however, essentially a claim for damages for the Architect’s breach of his obligations. Contractors are well advised, however, that their chances of success in advancing such a claim in legal proceedings are not good.

9. The NEC refers to an Activity Schedule, what is it?

An Activity Schedule is a term referred to in the NEC EEC Form of Contract main options A ‘Priced contract with activity schedule’ and C ‘Target contract with activity schedule’. The Activity Schedule is identified in the contract data and may be altered to take account of compensation events. The Activity Schedule will generally mirror the activities on the accepted programme but with values ascribed to each event rather than bars.

10. We were issued a Sub-Contract Order but never returned it. The job is not going very well and we want to pull off.  In view that we didn’t sign the Sub-Contract, are we bound by its terms?

Possibly yes. You may be bound by the terms. Acceptance can take the form of conduct. If following receipt of the Sub-Contract Order you commenced works on site you may have by your conduct accepted the terms of the Order. If, however, the Sub-Contract Order was issued after you started on site, silence can never constitute acceptance.

11. I submitted a tender. The Main Contractor requested a discount on my rates before placing the order to which I agreed. He now keeps paying me late. Is he entitled to take the discount?

Unfortunately, yes unless the Sub-Contract states that the discount is for punctual payment.

12. On an order based upon a Bill of Quantities they want to issue a variation for additional work. The rate in the BoQ is poor.  Must we carry out the additional works? Are we stuck with the poor rate?

Provided that the Sub-Contract included provisions for Variations it is most likely that you will be obliged to carry out the additional works and at the rates in the Bills of Quantities. You may, however, have a right to uplift the rate if you can show that the work is carried under different circumstances (more difficult) than that included within the Bills. It is worthy of note, that if you had a good rate this cannot be varied either unless again the work is carried out under different circumstances.

13. We are a working as a Sub-Contractor but the Main Contractor keeps paying us late which is affecting our cash flow. Is there anything we can do other than taking some form of legal action?

Yes, following the giving of a written seven days notice you can suspend your works on site after the notice period has elapsed. The notice must be issued after the final date for payment. There is no obligation to recommence until payment has been made.

14. The Contractor has not paid what I have applied for – what is the position?

Most contracts provide that a party is to be paid for works properly carried out as opposed to simply having to pay what has been applied for. The Contractor is, therefore, probably arguing that you have over applied and is making an abatement, reducing your application to take account of the fact that some work has not been undertaken or is not properly executed. In such circumstances they would not be required to issue a withholding notice provided they had not agreed the amount you applied for.

16. The Contractor has claimed additional time under a NEC Contract even though they will still complete prior to the Completion Date – is this right?

Under the NEC Forms of Contract, unlike for example the JCT Forms, a delay to the Completion Date is assessed as the length of time that, due to the compensation event, planned Completion is later than planned Completion as shown on the Accepted Programme. So yes it is possible, as it is the difference between the Completion Date and the planned Completion shown on the Accepted Programme that determines a party’s entitlement to additional time not whether the Works will actually finish later than the Completion Date as fixed under the Contract.

17. What is the difference between a defined and an undefined Provisional Sum?

These terms come from SMM7. General Rule 10 of SMM7 says that a Provisional Sum for defined work is a sum provided for work which is not completely designed but for which the following information shall be provided:

(a) The nature and construction of the work.
(b) A statement of how and where the work is fixed to the building and what other work is to be fixed thereto.
(c) A quantity or quantities which indicate the scope and extent of the work
(d) Any specific limitations and the like identified in Section A35.

Where Provisional Sums are given for defined work the Contractor will be deemed to have made due allowance in programming, planning and pricing Preliminaries. Any such allowance will only be subject to adjustment in those circumstances where a variation in respect of other work measured in detail in accordance with the rules would give rise to adjustment.

18. The Contract is JCT and because prices have come down the Employer wants to omit Section 2 and give it to another Contractor, can we claim?

Yes, whilst JCT Contract’s allow for work to be omitted they do not allow for works to be omitted and to be given to others. Such actions by the Employer would represent a breach of contract entitling you to damages including your loss of profit.

19. We are a Sub-Contractor on a project nearing completion under the JCT D&B Form, but the Contractor keeps issuing new snagging lists when we complete the last one. How many lists is he able to issue?

Under the JCT Forms prior to practical completion there is no obligation upon the Contract Administrator (or the Contractor under the Sub-Contract forms) to issue any snagging lists, rather the Contractor/Sub-Contractor must rectify all defects in the Works save for very minor (de-minimis) items to achieve practical completion. At the end of the Rectification Period (defects liability period) only one list of defects may be issued which the Contractor/Sub-Contractor has a reasonable period to complete. So to answer your question there is no limit on the number of lists that may be issued before practical completion.

20. We are a Contractor and employed an M&E Sub-Contractor now in receivership. We have a lot of his materials on site, however, a supplier is saying they are his despite us having paid the Sub-Contractor.

Possibly not. Many supply contracts contain a retention of title clause (sometimes referred to as a Romalpa clause after the case of Aluminium Industrie Vaassen BV v Romalpa Aluminium Ltd (1976)) whereby the seller retains title in any goods he has supplied until he has been paid. It is to be noted, however, that once the materials have been incorporated into the Works the retention of title clause will be of little value, as the materials are viewed as no longer existing in their own right. I suggest that you ask the Supplier for a copy of the contract placed with him by the Sub-Contractor to see if such a clause is included.