Martino Giaquinto As PFI projects go, the M6 toll road has had more than its fair share of disputes, but now one has gone all the way to the Court of Appeal over the usually straightforward issue of provisional sums
After numerous adjudications and three trials, the litigation over the M6 toll road reached the Court of Appeal in June. The parties were the Midland Expressway and CAMBBA, a joint venture between Carillon, Alfred McAlpine, Balfour Beatty and Amec.
A few eyebrows have been raised by the fact that of all the complicated issues being tried, it was a dispute over the apparently simple issue of provisional sums that tested the minds of the appeal judges.
As is common in construction projects, the contract between the parties provided for provisional sums. A provisional sum is used to refer to work whose content is undefined or for work that may not be carried out. The provisional sums agreed in this case amounted to £2m.
Later Midland Expressway, the employer, certified payments totalling £2.8m. Both parties accepted that the sums certified should be added to the contract price of £485m. However, CAMBBA claimed that the £2m provisional sum should not be deducted from the contract price. Midland Expressway, arguably adopting accepted industry practice, claimed that it should be. After all, that was the whole point of provisional sums – you deduct the notional value and add in the actual cost.
The legal headache was caused by the way that the contract said the cost was to be added to the contract price when the employer issued an instruction to execute work or expend a provisional sum. However, there was no mirror provision adjusting the contract price downwards by deducting the provisional sum itself.
Interestingly, the employer does not appear to have raised a rectification argument – that this failure to record the deduction of the provisional amount meant that the contract as drafted failed to record the parties’ true intentions – in any of the court hearings.
CAMBBA maintained that, as a consequence of the contract’s explicit wording, it was entitled to be paid both the original provisional sum of £2m as well as the actual value of the work executed and tax paid. In other words, the express words of the contract entitled it to be paid twice for the same work.
A situation where a party can withdraw a claim from adjudication is surely open to abuse
Although the argument may have been contrary to the “normal” treatment of provisional sums, CAMBBA’s argument reflected exactly what was said in a detailed, lengthy and (no doubt) heavily-negotiated contract.
The adjudicator, a leading construction QC, while finding the arguments finely balanced, agreed with CAMBBA. No amount of interpretation could make the contract mean what it did not.
However, in the Technology and Construction Court, Mr Justice Jackson decided that the adjudicator was wrong: the provisional sums were to be deducted from the contract price and CAMBBA’s construction of the contract did not make commercial sense.
CAMBBA decided to appeal. The case was heard by Lord Justice May, one of a small number of appellate judges to have practised at the construction bar. He noted that the term “provisional sum” is so widely understood in the industry that it was “close to a term of art”, but he said its precise meaning and effect depended on the terms of the individual contract.
Lord Justice May said Mr Justice Jackson’s conclusion in Midland Expressway’s favour was “generally persuasive”, although he said the judge did not address “head on” CAMMBA’s submissions that the wording of the contract did not require the provisional sum to be deducted from the contract price.
He noted that if the contract had stated that provisional sums were to be deducted it would have “saved a lot of lawyer’s fees”, but he dismissed CAMBBA’s appeal because of an essential point in the contract. This stated that provisional sums were there to be used (or not) in accordance with the employer’s instructions for the works. Therefore, by definition, they were only payable at all if and to the extent that the employer so instructed.
Martino Giaquinto is an associate at Mills & Reeve and can be contacted at firstname.lastname@example.org
Details on another M6 toll road dispute in the next issue of Building