A poisoned chalice

It is now becoming common for contractors on projects that are delayed to make offers to accelerate works in order to achieve completion earlier than would otherwise be the case. This is becoming commonplace on projects where the completion date is sacrosanct. Examples are the opening nights of theatres, university accommodation projects, schools projects and millennium projects that employers may be prepared to pay a premium to have on a particular date. A recent public example of this is the contractor’s offer to take responsibility for the completion of Bath Spa.

The common scenario is that the employer, usually a local authority or publicly funded body has a project that is substantially in delay. Often the contractor will blame the design team or the employer for changing the design. The design team will blame the contractor. The employer will then be in a position of not knowing who to believe. Even with the advent of adjudication it will not be certain that it will be able to get to the bottom of who is responsible. In those circumstances an offer from a contractor to accelerate may look attractive.

These agreements are fraught with difficulty and the employer needs to think them through carefully. The usual arrangement would be for a new completion date to be agreed in return for a sum of money, usually considerably more than the contract sum, which date the contractor will “guarantee”. The employer will therefore forgo any claims it might have had for liquidated damages for delays beyond the original completion date.

What exactly is the contractor agreeing to do? Often it will be the case that it is agreeing to use reasonable endeavours to complete the works by the new completion date. The employer is therefore in the position of having to place its trust in the contractor to complete by that date. It has no greater certainty than under the original contractual arrangement. If the contractor has failed to perform hither to, why should the employer trust it now?

What happens if the new “guaranteed” completion date is not met for a reason that is not the employer’s responsibility? The employer will have given up all its previous entitlement to liquidated damages and will be entitled only to the new liquidated damages agreed. Inevitably if the contractor fails to meet the “guaranteed” completion date, the employer and its design team will have to ensure that it has not given the contractor any cause for relief from liability for the delay. The design team will have to be brought into the process to ensure that, if there are any approvals or design requests outstanding, that they are turned around promptly. The timescales for such design team input is also something that will need to be considered in any “completion agreement”.

This sort of agreement will often preclude any claims that the employer might otherwise have had against its design team for breaches.

Agreements to accelerate work on contracts that are badly delayed are fraught with difficulty for the employer

It is likely that any completion agreement will include settlement of all outstanding claims from either party to date. Issues are likely to arise in the future as to whether or not a claim was known at the time of the arrangement. It may be the case that the employer will be unaware of potential claims from the contractor and careful consideration needs to be given to exactly what claims are being settled.

It is also often the case that in accelerating the contractor will often not be able to guarantee completion of all works. For example, in accelerating to meet say an opening night of a theatre, all the painting or finishes in the dressing rooms may not be complete but nevertheless the project is sufficiently complete to allow “the show to go on”. There needs to be an agreed “snagging” regime.

These sorts of agreements are obviously best avoided, but for an employer caught between a rock and a hard place it is often a case of needs must. If the parties can think of half the ways that the agreement could end in tears then they will be doing well.

Ashley Pigott is a partner in solicitor Wragge & Co