If you reduce the amount of work that the contractor must perform, can you make a saving? Not if you have an invariable fixed-price contract.
P&I Data Services Limited were acting as main contractor on the Glaxo Smith Klein site in Stevenage. It sent out tender specifications and drawings for pricing to sub-contractor SWI Electrical Contractors Limited. The tender information consisted of drawings describing the detail of the work that had to be performed and record sheets, which identified particular elements and parts of the building. SWI priced the tender documentation on a lump sum basis for each broad item of work and sent in its quotation. P&I accepted the quotation by purchase order and the contract was formed. During the course of the works P&I changed the drawings, so that SWI did not have to complete as much work as it had agreed. When SWI finished the work, it sent in its final account at the purchase order price. P&I worked out the value of the work that had not been completed by SWI and knocked it off the bill. SWI disapproved and made its feelings known to P&I. Any discussions that ensued thereafter by the parties in an attempt to resolve the matter failed. A dispute was born. SWI decided to sue P&I in the County Court for the full amount. The judge said that since SWI tendered a fixed price for the work that was shown on the drawings and in the specification, it took on the risk of the work being more extensive or expensive than anticipated and were only entitled to the fixed price. In other words, it made no difference if the work was less than shown on the drawings or included in the specifications. The judge decided there was a fixed price contract and found in SWI’s favour, awarding it the full amount. In a final attempt to get its way, P&I marched off to the Court of Appeal to settle the matter once and for all. The Court of Appeal decided that the judge was right in holding that the contract was a fixed price contract. P&I had to pay. SWI didn’t fail to do things it was required to do, P&I effectively asked it to do less work by altering the drawings and specifications. There was no agreement that by doing this P&I could pay less. Final thoughts No doubt most readers are familiar with the JCT standard building contract. Well, that is technically a fixed price contract but with a difference - it provides for variations to be issued during the construction phase, in which case the fixed price may change. Not to be confused with a “re-measurement” contract where the work content is only estimated at the start of the job. When the work is finished it is then subject to re-measurement and priced at unit rates included in the contract. The contract between SWI and P&I was different. There was no mechanism for making changes – it was fixed.
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Dr. Andrew MilnerDBEnv, LLM, MSc, BSc, MRICS, MCIArb Archives
February 2023
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