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Construction Costs Not Recoverable

PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.

Contract adjudicators provide an essential service but, if they get things wrong, the High Court is always there as a back-stop. In one case on point, a developer won back over £1 million it had been directed to pay to a building contractor following termination of a pre-construction services agreement (PCSA).

By the PCSA, the contractor had agreed to perform preparatory work in respect of a £100 million urban regeneration project. The work ran for two years prior to its termination by consent and the main contract was in the event awarded to another company. The contractor nevertheless argued that it was entitled to the balance of its fee agreed under the PCSA. After referring the dispute to an adjudicator, the contractor was awarded £1,166,711.

In upholding the developer’s challenge to that decision, the High Court found that the PCSA provided that the balance of the contractor’s fee was only payable in the event that it was awarded the main contract or upon the first valuation of construction work that it carried out on the project. Neither of those events had happened before the PCSA’s termination.

The contractor’s plea that the developer’s obligation to pay it the balance of its fee was triggered when the main contract was entered into with, or performed by, the other company made little commercial sense and was based on a misreading of the PCSA. In the circumstances, the contractor was ordered to repay to the developer the full amount of the adjudicator’s award, plus interest.

Says John Keeble “In this case, a failure by one party to build adequate protections into a contract proved to be very costly. Contact us to ensure your construction agreements fully protect your business interests.”


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