| Date | 10 May 2006 |
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| Judgment | ERDC Group Limited Brunel University |
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| The Issue | The valuation of works on a quantum meruit basis. |
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| Implication |
In certain circumstances it is appropriate to have regard to tendered rates and prices in making a quantum meruit valuation. |
printTo those not familiar with the ways of the construction industry (and perhaps to some who are) it will come as a surprise just how often substantial works are executed before one of the parties realises that there is not, in fact, any contract in place. This is often the result of the parties having commenced works on the basis of a letter of intent before all of the essential terms necessary for a contract have been concluded, and in anticipation that these terms will be agreed subsequently. If the parties do not subsequently reach agreement, either because they are unable to do so or because they simply overlook the necessity to do so, there will be no contract, other than what may be provided for by the letter of intent. An interesting variant on this theme occurred in the recently reported case of ERDC Group Limited v Brunel University where the university wanted to construct some new sports faculties at their Uxbridge campus. ERDC had tendered for these works in December 2001 and, whilst the university wanted ERDC to proceed, they felt constrained from entering into a formal contract as they had yet to secure full planning permission – although this was expected shortly. As a consequence the university issued various “letters of appointment”, authorising ERDC to undertake certain works. The first of these letters of appointment was issued in February 2002 and was limited to design and procurement activities, whilst subsequent letters of appointment extended the scope of the works to be undertaken by ERDC to include construction works. Each of the letters of appointment provided that the terms of the JCT Standard Form of Building Contract, With Contractor’s Design, were to apply to any work undertaken, as had been originally envisaged by the invitation to tender. The authority given by the last of these letters expired on 1 September 2002, although the works were not complete at that date and ERDC continued on site until the end of March 2003. Contract documents do not seem to have been issued by the university until November 2002 and, in a letter dated 2 December 2002, ERDC responded that they were not willing to sign the contract and were only willing to proceed on a quantum meruit basis. Throughout the period prior to this letter ERDC had issued their applications for payment as if the JCT form of contract had applied, using the rates and prices from their original tender. The case is particularly interesting because whilst the parties disagreed as to whether the letters of appointment gave rise to a contract for works executed during the period prior to 1 September 2002 (and the court held that they did), they were in agreement that there was no contract at all for the works executed after 1 September 2002. For this period the court had to decide how ERDC were to be recompensed for the work they had undertaken, leading to an interesting analysis of the various authorities on quantum meruit claims. Quantum meruit means (literally) “the amount he deserves” or “what the job is worth” and is the means by which the courts will determine what should be paid to a contractor in circumstances where work has been undertaken at the employer’s request but there is no contract. ERDC’s starting point for a quantum meruit valuation was the costs they had actually and properly incurred in carrying out the works should be paid, together with a reasonable or normal profit margin, as this represented a fair commercial rate for the work done and, hence, its value to the university. ERDC said the costs would necessarily include any prolongation and disruption costs, provided that the contractor was not responsible for the delay or inefficiency. The university took a somewhat different approach, pointing out that, for the period prior to 1 September 2002, ERDC had an entitlement to be paid in accordance with the rates and prices in their tender. As a consequence it was both illogical and unfair that simply because the letters of appointment lapsed after this date, a different basis of remuneration that was more favourable to ERDC should be applied. The university’s position was therefore that the quantum meruit valuation should be the reasonable value of the benefit it had received, and the contractor should receive a fair commercial rate. In this case the contractor had submitted a tender which the university was able to demonstrate by reference to the other tenders received was a fair commercial price, and ERDC had continued to use rates and prices from this tender as the basis of their interim applications for long after the letters of appointment had lapsed. In giving his decision the judge was clearly influenced by the unusual circumstances of the case in that there was a move from a contractual basis of reimbursement (i.e. prior to 1 September 2002) to a non-contractual basis of reimbursement, and that in such circumstances it would not be right to move from a rates based assessment to one based entirely upon ERDC’s costs. In the words of the university’s expert “… a price or rate that was reasonable before 1 September, in my opinion, does not become unreasonable after 1 September simply because the authority in the letter of appointment expires”.
CJ-0618
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