One varied subcontract or two subcontracts

Story Rail (SR) was engaged by Network Rail for refurbishment works at Carr Mill Viaduct in St. Helens. SR invited Supablast to tender for grit blasting and painting work on the project. Supablast provided a quotation of £270,209.82, together with a fully priced Bill of Quantities. In November, SR asked Supablast to quote for further works including steelwork repairs, encapsulation and scaffolding. On 17 December 2007, Supablast sent a quotation for the grit blasting, painting, encapsulation and scaffolding works. On 18 December, SR wrote to Supablast accepting the later quotation of £380,459.60, and told them to treat the letter of intent as the order to carry out the works, with the contract terms to be the subcontract to go with the Institution of Civil Engineers’ conditions of contract, 6th edition. Clause 18(4(a) of the subcontract made provision for disputes to be referred to adjudication.

On 20 December 2007, having been provided with revised steelwork quantities, Supablast submitted a revised quotation of £562,571.40.

Work commenced and Supablast submitted its first payment application in January 2008. On 29 January, SR sent a further letter of intent, which was identical to the first letter, accepting Supablast’s price of £552,203.40 plus VAT. However, this letter quoted the same order number as the letters of December 2007.

All applications for payment were broken down into the different types of work being claimed for, and SR processed these on the basis that all the work was to be paid and certified as one. SR paid Supablast monthly on a "Self Billing Sub Contractor Payment Certificate" which allowed Supablast a sum for "measured work" without differentiating between steel work or any other work, and a single payment was made on each certificate. SR did nothing to suggest to Supablast that there was more than one subcontract, although there was witness evidence that the applications for payment for steelwork and the other works had been processed together for convenience’s sake.

Supablast undertook substantial additional works, and claimed a further £3.4m. SR paid £1.8m of this. It was common ground that there had been delays to both the main contract and subcontract works. Supablast made applications for extensions of time for both the steelworks and the other works. Again these were processed together. It was only when Supablast issued a Notice of Adjudication that SR suggested that there had been two subcontracts, one for the steelworks and one for all the other works, and, therefore, a single adjudicator did not have the jurisdiction Supablast argued that there was only one contract which had been varied to include the additional works.

Mr Allen Wood was appointed as adjudicator, and he wrote to both parties informing them that he believed he had the jurisdiction. He took the view that whilst SR had issued two similar standard order forms to the two different types of work, the parties had intended that they were to be carried out as one subcontract since they had been administered as one subcontract for the duration of the works and after. He value Supablast’s final account at £2,117,741.34, and, allowing for retention and payments already made, this left a balance of £262,366.09 to be paid by SR together with VAT and the adjudicator’s fees. At several junctures in his reasoning, Mr Wood stated that in his opinion the steelworks had been a variation to the original contract works, and that all the steelwork repairs were the subject of a variation and a re-measure.

SR failed to pay the sum awarded and Supablast commenced the present enforcement proceedings. Supablast maintained that the subcontract had been contained in or evidenced by the letters of 17 and 18 December 2007 only, and that there was only one subcontract. In the alternative, Supablast argued that the steelwork repair work had been ordered as a variation or were treated as being a variation to the December 2007 subcontract. The parties accepted that if it were found that there were two subcontracts, then the adjudicator would not have had the jurisdiction to decide all the parties’ disputes. During the course of the judgement, Mr. Justice Akenhead made a number of observations about the referral of more than one dispute to an adjudicator.

It was clear that there had been one subcontract only. The minutes of a meeting between the parties on 16 January 2008 recorded objectively that all the works- the grit blasting, painting, scaffolding and steelworks- were to be carried out under one contract. The references to the contract were all in the singular, the subcontract price was defined as including the prices for all the works including the steelworks. There were single dates for the commencement of the works, and single practical completion and making good defects certificates. The letter of January 2008 did nothing more than confirm the previous acceptance of Supablast’s price. The fact that it required the subcontract reference to be the same as that in the December 2007 subcontract pointed to an established mutual intention to treat the steelwork as being covered by the original subcontract.

The fact that SR thought that there were two subcontracts but was treating them as one for administrative convenience was immaterial because that belief had not been communicated to Supablast by word or deed. Therefore, the adjudicator had had jurisdiction, and his award would be enforced.

Author: Ann Glacki

Date: January 2010

Commentary

The case reinforces the need to be sufficiently certain in contract formation as to the scope and content of the agreement. If two contracts are required by both Parties then that is alright but they need to be clear. Time and effort spent on getting the contract(s) right to begin with is much more cost effective than arguing about it after the event!

For more information contact Lorne Alway by telephone on 01295 275975 or by email on lorne.alway@alway-associates.co.uk

Author: Lorne Alway

Date: February 2010

Lorne Alway

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