Can a work in a contract be omitted and assigned to a new contractor?

W. K. Amila Gayan B.Sc.(Hons) in QS, A.I.Q.S.SL, MACostE 

IntroductionLiterature ReviewOmissions in FIDIC Types of ContractsBreach of Contract & RemediesCase ReviewCivil law jurisdictionsConclusionQ & A

Contents

Fundamental principle Contractor’s duty to carry out the workContractor must be permitted to carry out an complete the whole work

Most construction contracts contain a variation clauseAuthority to alter , add or omitWork may be omitted, but only if it is not to be done at allNot in order to give it to someone else in absence of express words to the contrary In normal circumstances act of omission and assigning it to other contractor is considered as a bad practice and contrary to the principle of “good faith” in construction industry

Introduction

Literature Review

“The Contractor, however, is entitled to perform all the contract work, so that a provision giving the owner or his A/E a power to make omissions only contemplates genuine omissions, that is, work which it is intended should not be carried out at all. The owner will generally not be entitled to use the power to omit work from the contract works in order to give it to another contractor to do, or to do the work himself, whether under provisions similar to the above clause or otherwise.”

Hudson’s Building and Engineering Contract (11th Edition)

“The Contract usually gives the Employer or the Architect power to order part of the work to be omitted with the consequent adjustment of the contract price. There is little English authority dealing with the exercise of such a power. On the construction of the Contract it may not extend to the ordering of variations, and it may not give the Employer the right to omit part of the work from the Contract with the object of giving it or similar work in substitution to another Contractor.”

Keating on Building Contracts

Literature Review

“Under normal circumstances, and in the absence of express words to the contrary, the employer cannot omit work from the contract specifically to give it to another contractor. If it did so it would be in breach of contract and the contractor would be entitled to recover its loss of profit on the omitted work as part of its action of breach”. (D. Brayan Mogan,2005)

Literature Review

Clause 51, FIDIC Conditions of Contract for Works of Civil Engineering Construction, Fourth Edition, 1987

“The Engineer shall make any variation of the form, quality or quantity of the Works or any part thereof that may, in his opinion, be necessary and for that purpose, or if for any other reason it shall, in his opinion, be appropriate, he shall have the authority to instruct the Contractor to do and the Contractor shall do any of the following:

(b)omit any such work (but not if the omitted work is to be carried out by the Employer or by another contractor),”

Clause 51, Oman Standard Document for Building and Civil Engineering Works, Third Edition, 1981 & Fourth Edition, 1999 (unofficial copy)

“The Engineer shall make any variation of the form, quality or quantity of the Works or any part thereof that may have been approved by the Employer and he shall have power to order the Contractor to do and the contractor shall do any of the following;

b)omit any such work,”

Omission in FIDIC Types of Contracts

Clause 13, FIDIC Conditions of Contract for Construction, First Edition, 1999

“Variations may be initiated by the Engineer at any time prior to issuing the Taking-Over Certificate for the Works, either by an instruction or by a request for the Contractor to submit a proposal.

The Contractor shall execute and be bound by each Variation, unless the Contractor promptly gives notice to the Engineer stating (with supporting particulars) that the Contractor cannot readily obtain the Goods required for the Variation. Upon receiving this notice, the Engineer shall cancel, confirm or vary the instruction.

Each Variation may include:

(d) omission of any work unless it is to be carried out by others,”

Omission in FIDIC Types of Contracts

Omani Conditions (1981)Absence of specific provision leaves ambiguitiesFIDIC third edition to fourth edition

The Engineer’s authority to instruct the Contractor to omit works expressly excluded to work to be carried out by the Employer or by another contractor

Clause 31 – Opportunities for other contractors

“The Contractor shall in accordance with the requirements of the Engineer, afford all reasonable opportunities for carrying out their work to any other contractors employed by the Employer and their workmen and to the workmen of the Employer and of any other duly constituted authorities who may be employed in the execution on or near the Site of any work not included in the Contract or of any contract which the Employer may enter into in connection with or ancillary to the work.”

Omission in FIDIC Types of Contracts

Breach of ContractActual Breach –fails to perform obligationAnticipatory Breach – announce in advance intended non-performance

Breach does not automatically discharge the contract

Damages and equitable remedies are the basic remedies

Object of damages is usually to put injured party in to same financial position he would have been had the contract been properly performed

Remoteness Hadley v Baxendale Loss flows naturally from the breachContemplation of loss by parties at the time the contract was made as a probable results of the breach

Breach of Contract & Remedies

Measure of DamagesExpectation Damages

business; loss of profitReliance Damage

put the innocent party into the position he would have been in had the contract never been made

Restitution

Mitigation

Liquidated DamagesGenuine pre-estimate of the anticipated loss

Equitable Remedies Specific Performances

decree by the court to compel a party to perform his contractual obligations

Injunctiondamages would not be an adequate remedy to compensateInjunctions are court orders compelling or restraining a specific act

Breach of Contract & Remedies

Carr v JA Berriman Pty Limited (1953) 89 CLR 327;

The contract gave the Architect the following power: "The Architect may in his absolute discretion and from time to time issue written instructions or written directions in regard to the omission of any work. The Builder shall forthwith comply with all Architect's Instructions".

In relation to that clause, the High Court of Australia heldArchitect to hand over at will any part of the contractor to another contractor is not intended by the meaning of the clause

Such power is most unreasonable

Required very clear word to confer

The judge made the reference that if work is omitted from the contract and given to other then the contractor will be entitled to claim loss of profit

Case Review

Gallagher v. Hirsch NY App Division 467 (1899) Additional excavation to support foundationContractor submitted estimateEmployer accept other contractor’s estimateIn carrying out additional work it was necessary to carry out a part of original worksA variation clause was available with power to omit a work The question put before the jury

“The employer had no right to take away any part of contractor’s contract and give it to another with out consent of contractor”

HeldOmission did not mean omitted from plaintiff’s contractIt is omission from the workDefinitely not allowed to take 2/3 of the work and compel to complete the restIt is the correct interpretation of the clause in question

Case Review

Amec Building Ltd v Cadmus Investments Co Ltd (1996) Amec was awarded to construct a shopping centrePart of food court was under provisional sumAmec claimed for loss of profit for a provisional sum omitted and given to other contractor

Amec referred the matter to arbitration

The arbitrator found in favour of Amec and the matter was then referred to the court by Cadmus

In finding in favour of Amec the judge stated: “It seems to me that the arbitrator was perfectly correct in deciding that such an arbitrary withdrawal of work from the provisional sums and the giving of it to the third party was something for which Amec were entitled to be compensated and the compensation that he arrived at namely the loss of the profit having accepted figures put forward to him in evidence is one which is not open to be impugned on appeal as a matter of law”.

Case Review

Abbey Developments Ltd v PP Brickwork Ltd (2003) TCC Construction of number of housing unitsProvision of the contract

Abbey’s right to vary the number of housing unitsAbbey’s right to re-negotitate rates or suspend the contractRe-tender the worksVariation clause allowing additions and omissionsTerminate on 7 days notice if failed to comply with contract

Abbey wrote to PP complaining performancePP disagreed with the complainsPP’s work was limited to current constructionSubsequently terminated the contractEmployed a third partyPP refer the matter to adjudication calling it as repudiatory breachAdjudicator found in its favorAbbey disagreed with decision and refer the matter to court

Case Review

Abbey Developments Ltd v PP Brickwork Ltd (2003) TCC contd…

VerdictThe court decided that variation clause in itself was not sufficient to confer upon Abbey the right to take away work from PP in order to carried out by other contractor even if Abbey had a bona fide dissatisfaction with PP’s performanceAbbey’s right to omit work was limited to the omission of work that was no longer required for the projectJudge made the reference to Hudson on Building Contracts (11th edition) Abbey did not rely upon provision of suspension and re-tender worksAttempted to terminate the contract before notice period expiresExpress wording can be drafted to permit effectively omit the work and give it to othersGreat care must be taken to rely on such provision and not to abuse it

Case Review

Multiplex Construction (UK) Limited v Cleveland Bridge UK Limited and Cleveland Bridge Dorman Long Engineering Limited [2008] TCC. 

Multiplex are the main contractor who constructed the new National Stadium at Wembley.

CB were the steelwork sub-contactor.

A substantial portion of work was omitted from CB and given to other contractor.

It was held that “A variation clause entitles the employer to omit work which he no longer requires.  Absent specific provision to that effect, a variation clause does not entitle the employer to omit work for the purpose of giving it to another contractor”.

Case Review

Some countries have specified loss of profits claim in their legislationDirect claimFrench Civil Code

“Damages due to a creditor are, as a rule, for loss which he has suffered and the profit which he has been deprived of….”“Even in the case where the non-performance of the agreement is due to the debtor’s intentional breach, damages may include, with respect to the loss suffered by the creditor and the profit which he has been deprived , only what is an immediate and direct consequences of non-performance of agreement”

If omission of work is legitimate claimContractor is clearly able to recover loss of profit as a part of his overall damage for claim

Civil Law Jurisdictions

The contractor should have opportunity to perform the whole of the contracted work subject to authorized variations of the Employer/Engineer. Generally, a work in a contract cannot be omitted for the purpose of assigned it to another contractor unless otherwise expressed provisions are written in the contract to the contrary.If such omission and assigning authority is not clearly mentioned in the Contract, the Contractor may have a valid claim for loss of profit.Parties are free to agree a term by which work can be omitted from contractually agreed scope and then give it to other contractor.Such clause should be drafted in clear words and it may contain the entitlement of loss profit to the contractor.

Conclusion

Q & A

Thank You!