A matter of give and take
In his latest exclusive advice column for Members, our resident expert examines a recent court case in Scotland to answer the question: Can work be taken away from you and given to someone else?
In this issue, I’m going to examine the thorny issue of having work taken away from you and given to a rival contractor.
So, let’s say you have a contract or sub-contract for electrical works priced at £20,000. You start work but are then told that 50% of your work is being omitted. To your horror, you subsequently discover that the work has been given to a competitor. What is the legal position?
Well, you have a right to carry out the contracted work in order to earn your expected margin. Very clear works are necessary to enable the other party to contractually deprive you of work in order to pass it on to another party.
To illustrate what I mean, let me talk you through the case of Van Oord UK v Dragados UK Limited that recently arose in Scotland’s Appeal Court, i.e. the Inner House of the Court of Session.
Spanish-owned Dragados UK was the main contractor the for Nigg Bay Harbour Project in Aberdeen, which was to allow more, and larger, vessels to dock in the city.
Van Oord was employed as the dredging sub-contractor and tendered a ‘blended rate’ for dredging of £7.48 per m3.
However, Dragados issued an instruction to omit a substantial slice of the work from Van Oord’s sub-contract with the intention of giving it to a third party. This was done through an amended New Engineering Contract (NEC) sub-contract. As a result, the ‘blended rate’ was reduced to £3.80 per m3.
The Dragados amendment
Please read the following statement carefully:“The Contractor may, in the event that a corresponding instruction is issued by the Project Manager under… the Main Contract only, also give an instruction to omit… Work, even if it is intended that such work will be executed by others”.
What did the court decide?
The court held that Dragados was in breach of the sub-contract. It could only issue its instruction to Van Oord in the event that a corresponding instruction had been issued by the Project Manager under the main contract. Such instruction had never been issued. The court therefore concluded that this breach of the sub-contract gave rise to a contractual “compensation event”.
This was in stark contrast to the judgement in the Outer House of the Court of Session, which had first heard the case. Inexplicably, this lower court had held that, in spite of the breach, Dragados could reduce the contract price to reflect the value of the omitted work.
The judges in the Inner House also held that the contractual requirement for the parties to act “in a spirit of mutual trust and cooperation” – which is standard in all NEC contracts – was not just aspirational.
In this case, it meant that a sub-contractor was not required to comply with an instruction issued in breach of contract.
Three things to remember
It is a breach of contract to take work away from you and give it to others UNLESS there are clear works in your contract to this effect.
Don’t agree to clauses enabling work to be taken away from you and given to others WITHOUT appropriate compensation to include loss of profit on that work.
If you have an NEC contract, check that the requirement in Clause 10 for parties “to act in spirit of mutual trust and cooperation” has been retained.
TAKING WORK AWAY
In his latest video for SELECT TV, Rudi outlines the issue of taking work away in more detail. He takes a closer look at the case of Van Oord UK v Dragados, outlining the major points and the significance of the court’s decision.
He also reveals what advice he would give to SELECT Members to help them avoid finding themselves in similar circumstances. Watch now on YouTube.
By Professor Rudi Klein
Barrister and SELECT consultant