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Construction litigation has lessons for CIOs

Sophie Dawson | July 1, 2014
A recent construction case highlights some key lessons which are relevant to CIOs and their teams when it comes to reviewing, understanding, and enforcing, contracts.

Uncertainty around scope did not make the contract void

In the Mainteck case, the key area of dispute was the scope of the subcontractors' service obligations.

The subcontract, relevantly, said that its areas of responsibility were "laid down in the technical specification of the main contract specifying the scope of supply and services to be performed by each party, and the work program."

Unfortunately, there was no definition of 'technical specification' in the subcontract. There was one in the head contract, but it did not divide the work between the contractor and the subcontractor.

A referee who considered the contract had previously found that the uncertainty as to scope was so extreme in this case as to render the subcontract void for uncertainty. A judge at first instance found that the referee was incorrect. The Court of Appeal agreed with the judge.

The court emphasised that courts are very slow to find contracts void for uncertainty. Where possible, courts interpret contracts in a way which preserves their validity, and will where necessary imply terms to enable the contract to be carried out. This is particularly true when the parties have partly performed the contract.

In this case, the court held that there was a clear intention of each party to enter into a legally binding relationship, which was evidenced by the lengthy and formal document they had created.

In those circumstances, the court accepted the contractor's arguments that the scope was defined in a pricing schedule to the head contract which was not called a 'technical specification'.

The schedule had headings which suggested that particular work was allocated to the sub-contractor and that other work (including design) was allocated to the contractor.

The court rejected arguments made by the sub-contractor that scope was defined in a bill of materials that was created after discussions at 'scope meetings' between the parties.

The court did not take the scope discussions into account when interpreting the contract because they were too unclear and had taken place long before the parties entered into the main contract.

The court recognised that its interpretation of the sub-contract meant that the sub-contractor had taken on significant risk. It meant that the sub-contractor had agreed to receive a fixed price for work which could be varied by design changes made by the principal and the contractor. Nonetheless, the court found that this was the proper interpretation of the contract.

What are the key lessons?

You may ask what significance all of this has for CIOs and their teams. There are key lessons that can be taken from this decision.

First, be sure to carefully read all of your contracts, including the schedules, which often give rise to problems as they are the least likely to be the subject of detailed review at a senior level.

 

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