The Contract between MKS and A&A Construction Limited was a Refurbishment / Demolition Asbestos Containing Material Survey of a Site

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Case Study

a. The contract between MKS and A&A Construction Limited (“the Contractor”) for the refurbishment of a site is signed under a JCT Standard Building Contract with Quantities 2016 (“JCT SBC/Q 2016”). The JCT Standard Building Contract is designed for construction projects that are big and requires days to complete along with detailed contract provisions. Standard Building Contracts are appropriate for tasks procured through the conventional or traditional method. The company ought to provide all necessary drawings and bills of quantities to specify the quantity and quality of work that is expected from the Contractor.

  1. The Contract between MKS and A&A Construction Limited was a Refurbishment / Demolition Asbestos Containing Material Survey of a Site. The Contract documents incorporated removal of asbestos which confirmed that whilst asbestos had been identified in the existing structure. A specialist asbestos removal contractor, ARK Removal Limited, ensured that all asbestos had been eliminated and the Site was certified for resettlement.
  1. At the time of contract there was no clause for removal of asbestos and whether the completion date will change on identifying asbestos in the material. On 25 February 2022, almost two months before submission, the M&E subcontractor, found some suspicious material in the basement of the Site which appeared to be asbestos.
  2. After complete inspection ARK Removal Limited returned to the Site and confirmed that the suspicious material contained asbestos fibers and advised A&A that, due to the location of the material, it would be difficult to remove and that they would only be willing to carry out the safe removal of the asbestos for A&A on a dayworks basis.

The contracts that are signed under JCT requires that a Pay Less Notice be detailed by the employer 5 days before the final date for payment if they plan to reduce the value of the amount of payment with a valid reason.  They must issue,

  1. The basis of the calculated sums
  2. The reasons for which these sums have been reduced.

According to the Construction Act 1996, Section 111, it confirms that the employer is required to serve a Pay Less Notice if there is any discrepancy in delivery within time or services completed by the Contractor, and the employer intends to pay less than the Contracted sum.  Section 111(3) stipulates that the notice must set out the sum considered to be due on the date that the Pay Less Notice was served, including the basis of the calculation.

Paragraph 10 of the Scheme stipulates that the Pay Less Notice must be given no later than 7 days before the Final Date for payment. The employer must send out a Pay Less Notice to withhold money.  If it fails to do so, the unpaid party has the right to:

  • Suspend performance on the project of its obligations under the contract
  • Give notice of its intention to refer a dispute to the contract.

There are no such clauses for a contractor to file a pay extra notice under JCT Standard building Contract. However, the contractor is liable to stop the work anytime there comes a problem which is not mentioned in the contract. A&A did not stop the work to demand extra money when asbestos was discovered in the material, they should not be entitled to get paid extra money in the respect of the removal of the asbestos.

b. In order to grant extensions of time for completion of the work, the construction contracts enable the contract administrator to determine if delay occurs due to certain specified causes. This analysis should benefit both parties in the contract. One of the primary purposes of extension of time clauses in contracts is to preserve the effectiveness of the liquidated damages provisions for the benefit of the employer. Liquidated damages are a reasonable pre-estimate of the losses the employer is likely to incur if work is completed late. Such sums are enforceable if the contractor completes late due to his own default.

Just few days into the construction work, the Contractor A&A’s construction manager found an uncovered material in the basement. A&A’s construction manager immediately suspended work in the affected areas of the Site and requested an instruction from Warren LLP who issued a written instruction on the affected material. ARK Removal Limited returned to the Site and confirmed that the suspicious material contained asbestos fibres and advised A&A that, due to the location of the material, it would be difficult to remove and that they would only be willing to carry out the safe removal of the asbestos for A&A on a dayworks basis. The completion date of the contract was 27th May 2022 and considering the time constraint, A&A gave notice to Warren LLP in accordance with the Contract requesting an extension of time and payment of loss and expenses.

  1. ARK Removal Limited said that it would be difficult to remove the asbestos from the material and that they would only be willing to carry out the safe removal of the asbestos for A&A on a dayworks basis.
  2. The daywork basis to remove asbestos has caused extreme delay in work.
  3. By the time the remaining asbestos containing material has been removed a delay to the Completion Date of 10 days had occurred.

After completion of the Works A&A receives a letter from Warren responding to A&A’s request for an extension of time and loss and expense in relation to the asbestos issue in which they acknowledged the extra work for removal of asbestos that A&A has done but argued that the Employer’s commercial director suggested that they should have been aware at the time of entering into the Contract, given the age of the building. There was a high chance of finding asbestos in the material. Therefore, Warren rejected the request for an extension of time and loss and expense and claimed that A&A accepted the time and money risk associated with this problem when they signed the Contract.

There is no exact clause for how much time can be awarded as an extension in JCT (Joint Contracts Tribunal), however clause 25 of the JCT Standard Form includes an extension of time provision which sets out a series of ‘relevant events’ that may give rise to an extension of time to the contractor if it is considered by the employer to have delayed the works beyond the existing completion date. Clause 24 of the JCT includes the liquidated damages provision which serves the interest of both the contractor and the employer. To determine the accuracy of relevant events to grant extension of time and expenses, the following two conditions should be met.

  1. The relevant event was beyond the control of the Contractor.
  1. The relevant event was not mentioned in the Contract.

Considering the letter sent by A&A and receiving a late response from Warren, A&A should be given an adjustment to the Completion Date and to payment for loss and expense in respect of the discovery of asbestos.

c. The letter from Warren responding to A&A’s request for an extension of time and payment of loss and expense in relation to the asbestos issue acknowledged the request and issue related to the discovery of asbestos. They are reminded by the Employer’s commercial director that A&A should have been aware at the time of entering into the Contract that given the age of the building, there was always a likely to be more asbestos in the basement. The employer blamed A&A that they accepted the time and money risk associated with this building when they signed the Contract. In those circumstances, Warren rejected the requests for an extension of time and payment of loss and expense.

The contract administrator is entitled to consider matters which he considers have delayed the works. The employer would blame the contractor responsible for delays when establishing whether a relevant event has in fact caused a delay. The employer must determine the main cause of delay and if the delay is caused intentionally by poor work performance by the contractor. The question for consideration by the contract administrator in determining the causes of delay si to find which one is a relevant event and the which one is not.

The delays that are caused due to extraordinary circumstances should be fairly dealt between the employer and the workers. If the architect or contract administrator consider it a fair and reasonable cause for a delay, he would be required to grant an extension of time to the employer. Extension of time clauses in the contract in this context therefore assures that the contractor would not bear sole liability for delays which have been brought upon by himself and the employer. The reasons and causes of delay within the employer’s control, which delays the contractor from completing the project by the completion date, there is no right to demand an extension time for poor performance. The Contractor is only entertained when he asks for extension of time, when unusual circumstances delay the project that couldn’t been foreseen.

A&A Construction Limited wrote a letter to Warren for requestion extension of time and payment of loss and expenses in relation to the asbestos which was responded way too late by Warren. By the time, ARK Removal Limited had already finished removing asbestos on a daywork basis. In order to determine Warren’s response to the request for an extension of time and payment of loss and expense, the company should consider the following facts.

  1. A&A Construction Limited was not responsible for removal of asbestos.
  2. ARK Removal Limited already ensured that all the asbestos had been removed before starting the refurbishment.
  3. ARK Removal Limited suggested to carry out removal of remaining asbestos on a daywork basis.
  4. Warren delayed the response of extension letter by A&A Construction Limited.

Considering the facts that led to removal of asbestos after it was discovered again by M&E sub-contractor, Warren’s response to the extension letter by A&A Construction Limited was unjust and incorrect. The employer, MKS also gave incorrect justification that A&A was aware and accepted the risk of finding asbestos during refurbishment when ARK Removal Limited already ensured that they have removed all asbestos from the Site.

d. Liquidated damages are a reasonable pre-estimate of the losses the employer is likely to impose if the work is completed later than the completion date. The total sum is enforceable if the contractor completes late due to his own fault. The basic essence of liquidated damages is that they represent a genuine pre-assessment of the likely loss that will occur if the employer receives his work late. The aim is to place the innocent party in the position where they can charge the other for breaching the contract. The primary purpose of damages is to put the claimant in the position he would have been in if the contract had been performed. There is a legal value of liquidation which is why Contractors use them in their Contracts.

Legally speaking, liquidated damages are defined as, “Monetary compensation for a loss, detriment, or injury to a person or a person’s rights or property, awarded by a court judgment or by a contract stipulation regarding breach of contract.”

If the parties to a construction contract agree to liquidated damages, they are agreeing, in advance, to a fixed sum that will be payable as damages if one of them breach the contract. Liquidated damages are funds covering the costs for each day the project continues past the agreed-upon date of completion. These funds are typically deducted from what the owner owes the contractor for the work, eating into already thin profit margins. MKS signed a contract with A&A Construction Limited for the refurbishment of a site with a clause that incorporated for liquidated damages. Included in the Contract Particulars was a Date for Completion of 27th May 2022 and included in those particulars was a condition relating to liquidated damages. The liquidated damages were decided to £2,000 per day for every day the work is delayed after the decided completion date of delivery. The contract was signed to be delivered on 27th May 2022 but got delayed by 10 days due to removal of asbestos that was found in the basement of the refurbishment site.

It was incorporated into the Contract Documents that A&A Construction Limited must work on Refurbishment / Demolition Asbestos Containing Material Survey which confirmed that whilst asbestos had been identified in the existing structure, it has been removed completely from the Site by  ARK Removal Limited, and the Site is ready for refurbishment. In this case, ARK Removal Limited ensured A&A Construction Limited that the Site has been eliminated with all sorts of asbestos and they wouldn’t have to spend time getting asbestos removed. But the M&E sub-contractor discovered that there was still some material in the basement of the Site which was appeared to be asbestos.

A valid recovery in the form of liquidated damages is applicable if the Contactor does not deliver its agreed product within the due date. In order for such clauses to carry the weight of law, it must be determined who is at fault for any delays, and whether a project delay is considered reasonable. It can be the fault of the contractor, the owner, or both or maybe some external factors. Determining the faulter is necessary if the owner wants to apply liquidated damages or the case will go in the court.

In this case between MKS and A&A Construction Limited, the following faults must be noted before implying the liquidated damages.

  1. A&A signed the contract without giving the clause that they will be responsible for any asbestos that will be found during refurbishment of the place.
  2. ARK Removal Limited already ensured that all the asbestos has already been removed before the start of Contract.
  3. ARK Removal Limited carried out removal of the asbestos on a daywork basis after it was found again.
  4. The Quality Surveyor rejected the removal of asbestos on daywork basis unless a notice for extension of time and payment of loss and expense has been submitted by A&A.
  5. Warren responded to A&A request for an extension of time and payment of loss and expense after asbestos removal was done.
  6. MKS claimed that A7A Construction Limited knew the risks with an old building before signing the contract.

There was not a single fault, and no one can be claimed as the sole faulter. ARK Removal Limited carried out safe removal of the asbestos. A&A Construction Limited sent a request for extension of time and payment of loss and expense but Warren responded too late. Considering all these factors, MKS is not entitled to deduct liquidated damages of £20,000, as it is not possible to determine if A7A Construction Limited is responsible for delay in completion of refurbishment.

References

Alway Associates (2010) Concurrent Delay Reviewed. Available at http://www.alway-associates.co.uk/legal-update/article.asp?id=24

Cave v Robinson Jarvis & Rolf (2002)

Henry Boot Construction (UK) Ltd v Malmaison Hotel (Manchester) Ltd (1999)

Knowles, R (2002) Concurrent Delays (A Comprehensive Review). Available at www.theqsi.co.uk/cpdmod/concurrent%20delays%202.doc

LawTeacher. November 2013. Extension of Time in Construction Contracts - JCT. [online]. Available from: https://www.lawteacher.net/free-law-essays/contract-law/extension-of-time-in-construction-contracts-contract-law-essay.php?vref=1

The Joint Contracts Tribunal Limited (2005) Intermediate Building Contract (with contractor’s design), London: Sweet & Maxwell

Williamson A (2005) Concurrency in Construction Delays. Available at http://www.keatingchambers.co.uk/resources/publications/2005/aw_concurrency_construction_delays.aspx


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