Determining a building contract, that is, bringing the contractor's employment to a premature end, is a high-risk strategy, particularly if this is done on the grounds of delay. It is risky for the following reasons:
It is the employer who decides whether to determine the contract. Such a decision can only be taken with the benefit of the contract administrator's opinion of the contractor's performance.That opinion may not be right.
The date by which the works ought to have been finished can usually only be decided after the works are completed and responsibility for the delaying events considered. Were the contractors slow or were they held up by late information and employer interference? During the course of the contract, it is not so easy to investigate the delay fully.
The contractors may have claimed an extension of time for completing.
But, even if they have not, the contract administrator has an obligation to consider whether they are entitled to more time anyway, before deciding that they are in delay.
Building contracts, particularly those which incorporate standard terms and conditions, cannot be brought to an end with a jerk of the thumb in the 'off-site' direction. They provide for a regime of notices specifying the default complained of, a period in which the contractor may rectify the position and a final notice. Care has to be taken to get it right.
The consequences of getting it wrong can be expensive. Seeking to determine a contract when there are no grounds for doing so, is, in itself, a breach of contract entitling the wronged contractors to pull off site and claim, as damages, the profit they would have earned had they completed the job.
These difficulties were considered in the case of Sindal Ltd v Solland (judgment 15.6.01) which concerned a contract for the renovation of a Mayfair property that fell into delay.The contractor's extension of time claim had been referred to an adjudicator, but before the decision was available the contract administrator's patience ran out and the contractor was given notice of its default for failing to proceed regularly and diligently with the works.Thereafter the employer determined the contractor's employment under the contract.
The contractor disputed both the original complaints about delay and the subsequent determination. Although its position was improved subsequently when the adjudicator decided that it was entitled to an extension of time of 28 weeks, the contractor determined its own employment, claimed yet more time and started a second adjudication. The adjudicator found that the determination had been wrongful and that the contractor was entitled to another 13-week extension.
The employer challenged the decision on the basis that the dispute referred to by the adjudicator related to the determination issue only, saying that the second adjudicator had no jurisdiction to give an extension of time.
The judge held that the dispute about determination was underpinned by the question as to whether the contractor was entitled to a further extension and that, accordingly, the adjudicator did have jurisdiction to decide the point. He made the following observations:
Before issuing a default notice, the contract administrator has to decide whether the completion date should be extended, even if the contractor has not requested an extension of time. The true date for completion is the objective yardstick by which the contractor's performance is to be measured.
It is artificial to say that the completion date is the contractual date, as extended, current at the time. Until the matter is finally decided, the position is constantly open to review.
An employer who wishes to rely on a contract administrator's opinion as to responsibility for delay must be satisfied that opinion is justifiable on the facts available at the time.
This case is a further warning of the dangers of determination. Contract administrators should investigate all the facts before deciding the contractor's default. Employers should be very careful before relying upon that decision.