| Date | 30 April 2003 |
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| Judgment | Mowlem plc v Newton Street Limited, TCC 4 April 2003 |
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| The Issue | The allocation of risk in design and build contracts adopting guaranteed maximum price provisions. |
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| Implication |
The courts will generally not interfere with risk allocation clauses unambiguously written into construction contracts by which the risk of unforeseen events is transferred to the Contractor. |
printOne of the primary motives for using design and build contracts is to secure that the contractor will be responsible for all design and construction activities and accordingly that the incidence of contractor's claims will be greatly reduced. It seems however, that this objective has not always been achieved. Increasingly, the standard form design and build contracts are being modified to place even greater emphasis on the transfer of risk to the contractor. These amendments often include references to a guaranteed maximum price within which the works will be completed. So onerous are these contracts that it is a wonder that sophisticated contractors remain willing to enter into such arrangements. The recent case of Mowlem v Newton Street provides an example. The parties entered into a contract in May 2000 for the conversion of a former Post Office sorting office into 104 flats, including parking and commercial units on the ground floor at Newton Street in Manchester. The contract was based on the JCT With Contractor's Design 1998 Edition, but with extensive amendment. In particular, an Article 10 had been added, which provided for a guaranteed maximum price for the carrying out of the contractor's obligations under the contract. Article 10 also set out, at considerable length, the additional risks and responsibilities of the contractor which were to be contained within the guaranteed maximum price. This included that the contractor had satisfied himself as to all risks which might influence or effect the carrying out of the works. These embraced incorrect or insufficient information having been provided to the contractor, any inadequacy or inaccuracy in drawings or specifications, and any other matter irrespective of whether it was foreseeable at the time of entering into the contract. Unsurprisingly on such a large and complex refurbishment project, problems arose which gave rise to delay and additional costs incurred by Mowlem. Newton contended that these were all contained within the contractual scheme for risk allocation and that the losses should lie with Mowlem in their entirety. The disputes were the subject of an arbitration and subsequently an appeal to the Technology and Construction Court. An example of the type of problem faced by Mowlem was repairs carried out by them to a concrete perimeter ring beam within the existing building. Although it was intended prior to execution of the contract that tests should be carried out on these structural components to determine their integrity and load bearing capacities, no investigations were carried out and no provisions were made for such investigations in the contractor's proposals. The arbitrator concluded that it was irrelevant that the contract made no specific reference to concrete repairs. In his view, the contract contained clear terms for the allocation of risk for such unforeseen matters. He held that all the direct and consequential delay and costs arising from the concrete repairs should be borne by Mowlem. The matter then came before His Honour Judge David Wilcox. Mowlem argued that the risks they had accepted by reference to Clause 10 and elsewhere in the contract, were to be contained within risks arising in connection with the Works. The term 'Works' was clearly defined in the contract and Mowlem contended that the repair work to the existing concrete perimeter beams could not be considered to be part of the 'Works' to be undertaken by Mowlem under the contract. Mowlem argued that Article 10 entailed acceptance by it of additional risks and responsibility to that accepted under the other provisions of the contract, but not the risk of rectifying at its own expense any unforeseen defects in the existing building adapted by Mowlem. Judge Wilcox could not accept this proposition. In his judgment, the provisions of Article 10 very clearly allocated the burden of unforeseen or unknown risks to Mowlem. As tendering contractor, Mowlem had to consider the information available about the existing building. Its condition was there to be ascertained and a tendering contractor was to be expected to take a commercial risk as to the extent of the information available. Judge Wilcox noted that in any contract with a significant design element at the interface of a building into the ground or on to an existing structure, there is a commercial imperative to allocate the risk of the unforeseen or to ascertain any degree of risk arising out of the ground conditions or existing structure. Within the scheme of the guaranteed maximum price contained at Article 10, there was nothing to displace the ordinary and unambiguous meaning of that provision that the risk of unforeseen defects in the existing building lay with Mowlem. The arbitrator's interpretation of article 10 in relation to the concrete repairs was appropriate and based upon the clear words of the contract within its general scheme. In consequence, Mowlem's appeal failed.
CJ-0316
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