A recent case shows that it is important to be careful with those amendments
Amendments to standard form contracts and appointments are commonplace, be it the JCT, the NEC3 or the RIBA Agreement. However, it is these amendments that can be the cause of significant disputes.
The recent case of McGee v Galliford Try demonstrates how parties really do need to take care when agreeing to any such amendments to their contract.
Here, Galliford Try engaged McGee as a subcontractor to undertake the design and construction of earthworks and related substructure works. The subcontract was based on the JCT design and build subcontract together with a large number of bespoke amendments. It was these bespoke amendments that became the issue between the parties.
In the subcontract, amended Clause 2.21B dealt with late completion of McGee’s works and provided a cap on McGee’s liability for direct loss and/or expense: ‘Provided always that the subcontractor’s liability for direct loss and/or expense and/or damages shall not exceed 10% (ten percent) of the value of this subcontract order.’
In addition, the parties had amended clause 4.22 which dealt with claims by the main contractor for loss and expense arising out of the subcontractor’s default affecting the regular progress of the main contract works.
Ultimately, Galliford Try made claims against McGee for delay and disruption, and sought to differentiate between a claim under clause 2.21 and one under clause 4.21.
McGee disagreed and commenced proceedings in court for a declaration that the amount of its liability to Galliford Try for delay and disruption was capped at 10% of the subcontract sum.
Galliford Try accepted that its claims arising out of what Galliford Try called McGee’s ‘delayed and disruptive delivery of the subcontract works’, where the alleged default caused Galliford Try to remain on site beyond the access target dates set out in the main contract, were capped by clause 2.21B. However, Galliford Try went on to say that its claims for the financial consequences of delay and disruption, which were said to arise directly out of a critical delay of 52 days to the main contract caused by McGee, were claims under clause 4.21 and so not caught by the cap.
Anyone who has ever put together, argued or been obliged to decide a claim for loss and expense under a building contract, knows that no sensible distinction can be drawn between delay and disruption
The judge considered that clause 2.21B was a straightforward provision seeking to cap McGee’s liability. The cap was not said to be referable to claims which may be made under particular clauses of the subcontract or for breach of any express or any implied terms. It is specifically a cap on McGee’s liability for a particular type of claim, namely one for ‘direct loss and/or expense and/or damages’. This meant the financial loss that flowed directly from delay and disruption caused here to the main contractor was recoverable, being ‘synonymous with the financial consequences of delay and disruption’.
‘Anyone who has ever put together, argued or been obliged to decide a claim for loss and expense under a building contract, knows that no sensible distinction can be drawn between delay and disruption. One man’s delay is another man’s disruption. A subcontractor’s failure to complete a particular part of his work may have an adverse effect on the main contractor, but whether the consequential claim is one for delay or disruption, or a mixture of the two, will depend on a raft of factors: whether or not the delay was on the critical path of the main contract programme, what other subcontractors were affected and how, if others were also in default etc. It is impossible to divide up such claims between delay, on the one hand, and disruption, on the other.’
Accordingly, the cap in the subcontract caught all Galliford Try’s claims for loss and/or expense and/or damages for delay and disruption.
As the judge noted, the problem that arose in this case is all too common: a potential mismatch between the JCT standard terms and the bespoke amendments.
IN PLAIN ENGLISH
Disruption
Disruption is the interference with the regular progress of works where the cause is a matter for which the employer is responsible under a construction contract (either under loss and expense provisions or by way of breach of contract). It can be grounds for a claim, usually where there has also been delay, called a ‘delay and disruption claim’. Proof of what caused the disruption and the valuation of the effect of disruption in terms of indirect costs is a fertile area for dispute.
In February 2017, the Society of Construction released its second edition of the ‘Delay and Disruption Protocol’. This Protocol considers disruption to be a ‘disturbance, hindrance or interruption to a Contractor’s normal working methods, resulting in lower productivity or efficiency in the execution of particular work activities’ (Paragraph 5, Part A).
As can be seen from the judge’s commentary in McGee v Galliford Try, drawing a distinction between what is delay and what is disruption is not necessarily a straightforward task.
Stacy Sinclair is an associate at Fenwick Elliott