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Ground conditions: An entitlement to additional costs despite accepting risk?

08 January 2019.

The High Court published a decision late last year which deals with a frequently encountered issue; a claim for additional payment where a sub-contractor encountered adverse ground conditions.

The sub-contractor, Clancy Docwra, was engaged by E.ON Energy to excavate trenches in connection with the installation of a district heat network in central London. During the course of the project, Clancy Docwra encountered adverse ground conditions (specifically underground brick walls and rubble) and the parties were in dispute over what additional entitlement (if any) Clancy Docwra had in relation to those works. 

The allocation of risk

The subcontract was based on the JCT Standard Building Sub-Contract with bespoke amendments, one of which placed the risk of encountering adverse physical conditions on Clancy Docwra:

"2.1.8 - Notwithstanding any other provision of this Sub-Contract, the Sub-Contractor shall not be entitled to any extension of time or to any additional payment, damages, or direct loss and/or expense on the grounds of any misunderstanding or misinterpretation of any matter set out in clause 2.1.7, or his failure to discover or foresee any risk, contingency or other circumstance (including, without limitation, the existence of any adverse physical conditions or artificial obstructions) influencing or affecting the Sub-Contract Works"

Despite this provision, Clancy Docwra argued that the risk of encountering the conditions it encountered was retained by E.ON Energy on the basis that the conditions it encountered fell outside the scope of its Sub-Contract Works.

The "Sub-Contract Works" were defined as "the works referred to in the Sub-Contract Agreement and described in the Numbered Documents to be executed as part of the Main Contract Works, including any changes made to such works in accordance with this Sub-Contract.” 

Essentially Clancy Docwra's position was that the Numbered Documents excluded the particular circumstances which were in dispute. Accordingly, those circumstances were excluded from the scope of the Sub-Contract Works which were defined by reference to the Numbered Documents. As the work fell outside the scope of the Sub-Contract Works, the allocation of risk (including the clause noted above) was simply irrelevant.

The decision

The parties initially adjudicated the dispute and E.ON Energy was successful. However Clancy Docwra then referred the matter to the Court for declaration in relation to the above arguments the Court agreed with Clancy Docwra's argument.

The Court undertook a detailed review of the Numbered Documents (which included requests for tender clarifications and responses) and determined that Clancy Docwra were "right to say that their works did not include the matters that were specifically excluded by them from their scope of works as set out in their tender submissions and the Post Tender Minutes [which were Numbered Documents]"

Comment

Express clauses which place the entire risk of adverse ground conditions on contractors/sub-contractors are common. However what this decision highlights is that such clauses are of little use to those that seek to rely on them if the scope of the work is not within what the sub-contractor has agreed to carry out.

In this case (as is also common) the scope of work was defined by reference to numbered documents. It is thus essential for parties placing a contract to ensure the scope of the work is correctly defined in those numbered documents. That should include ensuring that any clarifications or exclusions which are set out in tender documents are fully understood.

We frequently see responses to tenders including clarifications / exclusions from the work set out in tender enquiries. This case highlights the importance of ensuring those clarifications / exclusions to the scope of work are agreed or are removed from the documentation (e.g. by seeking a revised proposal is produced) where the documents are to define the scope of work.

Finally, for those seeking additional cost and/or time in connection with adverse ground conditions encountered it highlights an avenue of argument which may have previously not been considered.