Permanent fixes

The Construction Act is under active review, and suggestions for changes will no doubt come in from all sides. Could lessons be learned from the process plant sector, which was largely exempt from the rigours of the Construction Act on the basis that it is relatively free of disputes?

It is rare to see the courts dealing with disputes under the IChemE conditions (the model form for process plant contracts) but in the case of Rhodia Chirex vs Laker (Building Law Report, March 2004) the Court of Appeal had to consider the relationship between certificates of the project manager under the contract and the decisions of an expert. In many respects the role of the expert under this model form, which does not have to comply with the Construction Act, is similar to that of an adjudicator under a construction contract. He has to reach a decision without a full-blown disputes procedure. The difference is that decisions are final and binding, and cannot be dislodged by an appeal. Adjudicators' decisions are only binding until they are overturned.

How, then, does the IChemE contract decide which issues are suitable for resolution on a final and binding basis? Guidance notes tell us that the expert is given this power in the context of "relatively minor disputes". Major disputes have to be dealt with by arbitration. See if you think that the Rhodia case that came before the expert (and ultimately the Court of Appeal) is relatively minor.

Laker had undertaken piping works on the basis of the IChemE contract at Rhodia's plant. Under that form, the owner can terminate the contract "at will" without having to prove contractor default. But the quid pro quo is that he must compensate the contractor for disruption, and he must do it promptly.

Rhodia terminated the contract a year into the job. The project manager was obliged to issue a termination certificate within 90 days, stating the sum due to the contractor, including compensation for the termination, with payment within 14 days. If a final calculation could not be made within that period the project manager had to make a "best estimate" of the amounts due and issue a "provisional" termination certificate. This is what the project manager did. But the provisional certificate showed only a minute balance due to the contractor, which then cried foul and sought a decision on its entitlement from the expert. The expert issued a decision awarding it £100,000. Off went the contractor to court to collect the money.

Making experts’ decisions binding can have a profound influence on the future of a contract

But the termination procedure had not been concluded. Once exact ascertainment of the sums due to the contractor becomes feasible, the project manager is obliged to issue his "final" termination certificate. Before the case reached court the final termination certificate had been issued showing (surprise, surprise) a whopping balance in favour of Rhodia. So, the employer had sacked the original project manager and within hours of its appointment, the new project manager had produced a calculation favouring its client. We will probably never know if this final certificate was contractually valid.

The Court of Appeal enforced the original expert's decision, favouring the contractor, on the basis that the final certificate had been issued long after the court proceedings had started and could not be relied on as a defence.

But – and this is the importance of the case – the court stated that if the expert reviewing the provisional certificate decided what sums were properly due these would be final and binding and could not validly be changed by the project manager's final certificate. By contrast, an adjudicator's decision on an interim certificate under a JCT contract can not bind the architect issuing a final certificate.