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Construction contracts: no implied obligation to “get on with it

An issue that regularly crops-up in practice, but rarelybefore the courts, is whether a contractor is subject to an obligation toprogress its works in a “regular and diligent” or similar manner, and if sowhat this actually means. In a recent judgment, the TCC decided that asubcontractor was not under any implied obligation to proceed with its works“regularly and diligently”. The same is likely to be true for main contractorsand others involved in construction projects.

The Facts

The case concerned a groundworks subcontract. The maincontractor initially claimed that the subcontractor was obliged to perform itsworks in accordance with an activity schedule that set out activities and bywhen they were to be completed. The subcontractor, it was claimed, was late inthe performance of its works as against the activity schedule, and the maincontractor alleged that it suffered a loss due to the subcontractor’s delay.The main contractor sought to withhold damages for delay from amounts otherwisedue to the subcontractor.

Later on, and before the TCC, the main contractor acceptedthat the activity schedule was not binding on the subcontractor. Nevertheless,it maintained that the subcontractor was subject to an implied obligation toproceed “regularly and diligently” with its works, and in this context thatmeant following the activity schedule. Because the subcontractor had notfollowed the activity schedule – the argument went – it had breached itsimplied duty to proceed “regularly and diligently”, and therefore it was liableto pay damages to the main contractor for its tardy performance.

The Court’s Decision

Mr Justice Coulson rejected the main contractor’s arguments.In order for a term such as an obligation to proceed “regularly and diligently”to be implied into a contract, it must (among other things) be necessary toimply that term to make the contract work, from a business point of view. Here,there was no need to imply such a term, as the contract could still operate ina workable manner without the subcontractor being required to work in a“regular and diligent” manner. If, for example, the subcontractor was soirregular and lacking in diligence that it failed to complete its works by thestipulated date in the subcontract, the main contractor would be entitled toclaim damages for late completion.

The court’s conclusion was fortified by the terminationprovisions of the subcontract, which permitted the main contractor to terminatethe subcontract if the subcontractor failed to proceed with the works in aregular and diligent manner. This suggested that the parties had turned theirminds to the issue of whether the subcontractor should be required to proceed“regularly and diligently”, and what consequences (if any) should flow from alack of regularity and diligence. Although there was an express power toterminate the subcontract should the subcontractor fail to proceed “regularlyand diligently”, this did not mean that the subcontractor was subject to animplied obligation to work in a regular and diligent manner, so that it wouldbe liable to pay damages to the main contractor if it failed to do so. The maincontractor’s primary remedy for lack of regularity and diligence was the rightto terminate the subcontract.

Comment

This case is consistent with earlier decisions of theEnglish courts to the effect that there is no generally implied obligation on acontractor, subcontractor or even sub-subcontractor to proceed “regularly anddiligently” with its works. It is for this reason that contracts, such as theJCT forms, state expressly that the contractor is under such an obligation, andit will be liable if it does not proceed in a “regular and diligent” manner. Acomplementary or even separate measure is for a contract to require thecontractor to work to a particular programme, so that if the contractor isrunning late in certain activities on its programme it may be obligated to paydamages to the employer for any loss occasioned by it being late, or it may beinstructed to accelerate.

Interestingly, despite the NEC3 form requiring thecontractor to submit a programme for acceptance, NEC3 does not in terms requirethe contractor to perform its works in accordance with its accepted programme.Nor does NEC3 impose any general obligation on the contractor to work in a“regular and diligent” manner, or equivalent. This may necessitate amendmentsto the NEC3 form, when used.

The message that this case delivers is clear. Unless acontract expressly requires a contractor to perform its works in a “regular anddiligent” manner (or similar), or it requires the contractor to work to aparticular programme, the contractor may perform its works in almost asspasmodic a manner as it chooses – provided it completes those works by theparticular date for completion.

This article first appeared in Law-Now, CMS CameronMcKenna's free online information service, and has been reproduced with theirpermission. For more information about Law-Now, click here.

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