Does your contract cover prior works?

I was once asked to assist a client to draft the construction contracts for a number of projects they were undertaking. I asked them when they were intending to start the building works on the different projects, only to be informed that the building works had in fact been completed and the buildings were already in use.  

This is all too common an occurrence in construction works.  However, there is a huge risk that a dispute may arise as to what terms do apply to the contract.

Why would the parties want a formal contract after the works have been completed?

The reason is to make sure that everyone knows what the parties’ responsibilities were and to obtain agreement on what standards the building works should have reached. 

Sometimes, it is quite clear that a formal contract entered into after the works have commenced governs the works. This can be done simply by an express clause in the contract stating that it covers all prior work carried out.

No express clause in the contract

In the recent TCC case of Balfour Beatty Regional Construction Limited v Van Elle Limited, there was no such clause and the court had to decide if a formal subcontract covered prior works. There was also a letter of intent and an offer by Van Elle which referred to its terms and conditions to consider. Van Elle wanted its terms to be incorporated to cover part of the works as there were limitations in their terms that they said would limit the claims against them in respect of those works.

The works they wanted their terms to cover, the North Carousel works, were not expressly mentioned in the formal subcontract. That subcontract referred to some particular works and then more generally to the outside works. The North Carousel works were commenced in June 2012, after Van Elle had sent through their quotation and they had been instructed to carry out the works.  

The formal Sub-Contract was not executed until December 2013. It was Van Elle’s argument that as there was already a contract for the North Carousel works by way of its accepted quotation, that was not covered by the subcontract.

The Judge looked at the factual matrix surrounding the subcontract and works. This included noting that the same project number was used throughout and that there was one continuous set of accumulating valuations covering all of the works.  

If they had been separate contracts, then there would have been two different contract numbers and two different sets of valuations. The Judge also found reasons as to why the letter of intent and quotation could not have formed a contract. On that basis, it was held that the formal subcontract covered the prior works.

This may bring some comfort to parties where works are carried out prior to a formal contract being executed. However, it should also be a warning that not agreeing the form of contract prior to work commencing, can cause significant difficulties to both parties and therefore should be avoided if at all possible.