Construction Law

  Scenario: The client is a relatively new company called Percy Land. Mr and Mrs Percy made a small fortune selling their estate agency business (Percy Estate Agents) and decided to set up a company to buy derelict land, build flats and then sell the finished buildings on at considerable overall profit. For their first project Percy Land purchased a piece of land for which they received outline planning permission for a 3-storey block of 10 flats. Being extremely cost conscious, Percy Land decided that for their first venture they would procure a main contractor directly on an unamended JCT D&B contract 2016. The main contractor was called CheapestBuild Ltd. However, not having any experience of this sort of procurement or of the JCT suite of contracts Mr and Mrs Percy signed the contract with little review. It didn’t take long for Percy Land to realise that despite being excellent estate agents, they were out of their depth when it came to development and since the start of the project have fallen out with CheapestBuild Ltd several times. The project ‘Meadow Gardens’ is on a 52 week programme. We are now on the first day of week 25. The groundworks, substructure, superstructure and windows have been installed and the roof is 80% complete. This has all been to programme. To everyone’s surprise CheapestBuild Ltd have gone into liquidation. Works on site have stopped almost immediately as no sub-contractor wants to continue working if they won’t be paid. It has also come to your attention that Cheapest Build Ltd had their sub-contractors and suppliers on 90 day payment terms – so nearly all those working on the project are owed money for work going back months. Percy Land has decided to immediately employ Venti Consultants (your employer) to provide Contract Administration and Quantity Surveying services. All other services are provided by others. Table 1 gives an overview of ‘CheapestBuild Ltd.’s’ contract sum to date: Original Contract Sum £6,000,000.00 Gross amount paid to CheapestBuild Ltd to date £3,000,000.00 Minus retention at 5% £150,000.00 Actual amount paid to CheapestBuild Ltd to date £2,750,000.00 Gross value of latest AFP (6) received from CheapestBuild Ltd £1,000,000.00 Table 1: CheapestBuild Ltd contract sum 6 Prior to entering liquidation CheapestBuild Ltd submitted several claims, which have not yet been responded to. Additional Work – CheapestBuild Ltd claim that the client Percy Land verbally told them on site to change the paving materials they were to use from red to grey. CheapestBuild ltd failed to issue any notification or confirmation of the change. Percy Land disagree with this and claim no verbal instruction was ever given. £5,000.00 Additional Work – CheapestBuild Ltd claim the site was not as agreed and required extensive cleaning of illegally dumped waste prior to works commencing. £5,000.00 Provisional sum – There was a provisional sum included in the contract for the type of composite cladding panels to be used on one elevation. CheapestBuild Ltd have said the ones finally agreed have cost a lot more than the provisional sum allowed. These have not been installed yet but are currently stored on site having being delivered a few days earlier. £40,000.00 Delay – 1 week due to inclement weather at the start of the job. Percy Land were notified by CheapestBuild Ltd immediately. £35,000.00 Delay – 2 weeks due to client design changes. Percy Land were notified by CheapestBuild Ltd immediately. £70,000.00 A lack of a payment notice, or any response issued for their most recent Application For Payment (6). £1,000,000.00 Cheapest Build Ltd claim that Percy Land issued them an instruction to excavate ground and reveal the depth of the foundations as Percy Land believed they didn’t go deep enough. Once revealed the foundations were clearly built to the correct depth (CheapestBuild Ltd have an email and photo confirming this). £5,000.00 Table 2: Claims A sub-contractor ‘BestBricks’ has also approached Percy Land directly. Because of their 90 day payment terms with CheapestBuild Ltd they have informed Percy Land they have not received their last certified application for payment for £100,000.00, nor have they received any payment or payment notice for their most recent application for payment, for £50,000.00, submitted 1 day before CheapestBuild Ltd went into liquidation. They feel it is unlikely they recover any of the outstanding monies from CheapestBuild and have asked you if Percy Land can do anything to help their situation. 7 Task 1: (3,000 words - 50% of overall mark) Critically assess the contract in respect of the actions that will be required with regards to termination, payment, and settlement of outstanding claims. Explore the contractual clauses, legislation and relevant case law when making your decisions. Your boss has asked you to prepare a 3,000 word report advising Percy Land as how best to resolve the situation at Meadow Gardens, and what contractual steps should be taken, including any required notifications and timeframes involved. You will also need to need to include within the 3,000 word allowance how you would respond to the approach from BestBricks. Task 2: (3,000 words - 50% of overall mark) Percy Land Ltd has approached you on a separate matter. Having an eye on their next development they have acquired a parcel of land in the centre of London and have gained outline planning permission for a 6 storey residential block. Percy Land are unsure whether to use a JCT Design and Build Contract 2016 again as they feel angered by their current project ‘Meadow Gardens’ and partly blame the contract. They want to consider their contractual options and have come to Venti Consultants for advice. Percy Land have heard only issuing a Letter of Intent will free them of any contractual obligations. Percy Land want any advice to specifically focus upon how a change in contract will impact their responsibilities as client, any additional costs that they will have to pay, either directly, or indirectly, and what other advantages they will receive, as well as any disadvantages a different contract may bring. Percy Land also want to know what impact only issuing a Letter of Intent will mean for them. Part (i) – Your boss is an ardent fan of the NEC4 suite of contracts and has told you to produce a strict 3,000 word report for Percy Land, due 4pm Friday 4th May 2018, on why the NEC4 Option A: Priced Contract with Activity Schedule will be better for Percy Land than the JCT D&B 2016. Part (ii) – Include in the above report your advice to Percy Land on any advantages and/or disadvantages in issuing a Letter of Intent.