![]() |
[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback] [DONATE] | |||||||||
England and Wales High Court (Technology and Construction Court) Decisions |
||||||||||
PLEASE SUPPORT BAILII & FREE ACCESS TO LAW
To maintain its current level of service, BAILII urgently needs the support of its users.
Since you use the site, please consider making a donation to celebrate BAILII's 25 years of providing free access to law. No contribution is too small. If every visitor this month gives just £5, it will have a significant impact on BAILII's ability to continue providing this vital service.
Thank you for your support! | ||||||||||
You are here: BAILII >> Databases >> England and Wales High Court (Technology and Construction Court) Decisions >> Plymouth & South West Co-Operative Society Ltd v Architecture, Structure & Management Ltd [2006] EWHC 5 (TCC) (10 January 2006) URL: https://www.bailii.org/ew/cases/EWHC/TCC/2006/5.html Cite as: [2006] EWHC 5 (TCC), [2006] EWHC 05 (TCC) |
[New search] [Printable RTF version] [Help]
QUEEN'S BENCH DIVISION
TECHNOLOGY AND CONSTRUCTION COURT
131 – 137 Fetter Lane, EC4A 1HD |
||
B e f o r e :
____________________
Plymouth & South West Co-operative Society Limited |
Claimant |
|
- and - |
||
Architecture, Structure & Management Limited |
Defendant |
____________________
Mr Paul Darling QC and Mr Justin Mort (instructed by Kennedys, 10 Lloyds Avenue, London, EC3N 3AX) for the Defendant
Hearing dates: 7 – 10, 16 & 23 March and 5 – 9, 12 & 30 September 2005
____________________
Crown Copyright ©
HH Judge Thornton QC:
1. Introduction
2. Factual Background
"we seek to redevelop and sub-divide Co-operative House to include the CIS building by way of various lettings to other retailers with the sale of the completed development to a third party funder/investor with the Society taking a lease for the offices and retail space covering the whole of the third floor for offices and approximately 75,000 square feet for retail. That we seek to negotiate with Plymouth City Council either the purchase of the freehold of Co-operative House or a new Ground Lease with a term of at least 125 years."
The Board was informed that the likely premium for a new Ground Lease would be in the region of £1 million.
"There has already been a drift in the timescale with respect to the above and I would like to ensure that the project is brought back on line. Time is of the essence, as you are fully aware, and the preliminary programme is very tight to achieve the Society's ultimate goal."
The letter then instructed ASM to advise on the necessary Planning Application, elevational sketches, ceiling height dimensions and a brief specification for what would be provided for each of the proposed shell units.
3. Witnesses
4. Contract Formation and Scope of ASM's Duty
ASM's Contract
ASM's Previous Experience of Working with Plymco
"As regards the different methods of procurement, I would say that my experience was limited to the fact that I knew that there were different methods of procurement and what the most commonly encountered of them were. However, I did not know the pros and cons of each or what each involved in any detail and therefore how to apply that knowledge to deciding which would be best suited to the project. I therefore relied on ASM for this advice."[1]
5. Breach of Duty – Procurement, Tendering and Contract Formation Stages
Introduction
"ASM should have advised about the cost risk involved in a contract which contained so many and such substantial prime cost and provisional sums. They should have advised Plymco to place a contract for part of the works (known as the Argos works) as a separate contract and not place a contract for the balance of the works until their design had been progressed."
History of the Design Development of the Co-operative House Project
"The programme is tight even to satisfy Argos's requirements for possession on 21 April 1997. Digby [Gibbs of ASM] is endeavouring to provide plans within 2 weeks to reflect Ray Guy's [of Healey & Baker who was marketing the shop units for Plymco] requirements for the shop units and subject to Ray's agreement, this hopefully will trigger the planning application. Assuming 3 months for determination and, in Digby's estimates, a further 4 months for the building contract, one envisages completion of the works at the earliest by January/February 1997. In the meantime, Ray anticipates an exchange of agreements with Argos in the next 2 months and, subject to marketing the units fronting New George Street next month, conclusion of those lettings by September this year.
I would not recommend approaching the general market to fund this development until the lettings are concluded …
Subject to commencing marketing in September, I would expect a legal commitment to fund the development by the year end.
"My recommendation is to keep the funding of this development as simple as possible." [This would be reflected by negotiating funding by two payments, one when Plymco acquired its long lease from Plymouth Council on making a substantial premium payment and the second on practical completion of the work involved in making the self-contained shells].
"The programme is tight even to satisfy Argos's requirements for possession on 21 April 1997. … one envisages completion of the works at the earliest by January/February 1997. In the meantime [we] anticipate an exchange of agreements with Argos in the next two months and, subject to marketing the units fronting George Street next month, conclusion of those lettings by September this year.
I would not recommend approaching the general market to fund this development until the lettings are concluded …
Subject to commencing marketing in September, I would expect a legal commitment to fund the development by the year end."
"Q. … Can you look [at] … a letter from you to Mr Fletcher dated 30th September 1997 … it says:
'The overall position continues to change, which is to be expected on a contract which started as 100 per cent provisional, …'.
What did you mean by saying 'on a contract which started as 100 per cent provisional?'
A. I was drawing to the attention of Mr Fletcher an element, an aspect of the project which although it had been well-known to Mr Ryland he may not have been aware of, which was the implication of proceeding with a project of this nature when it is largely provisional – yes, virtually it is, yes, 100 per cent provisional.
Q. Would I be therefore right in assuming that you think a fair way for people to think about this contract as being a contract which was 100 per cent, more or less entirely, provisional? Is that a fair way for us to think about it?
…
A. Yes, it is a fair way to consider it as a largely provisional contract as the parties understood from the beginning …".
Building Contract
"1.1 This Code has been prepared for use by all who commission building work, whether in the private or public spheres.
The most appropriate method of obtaining tenders for the majority of building contracts is by means of single selective tendering … On contracts where it is desired to secure the early involvement of the general (main) contractor before the scheme has been fully designed two stage tendering procedures as described in this Code may be adopted.
This Code is concerned solely with tendering procedure and not with the possible involvement of the general (main) contractor in responsibility for design. …
This Code assumes that the employer's professional team retains responsibility for design and site inspection although the advice of the contractor or proposed specialist sub-contractor(s) may be obtained during the development of the design. …
2.3 … The purpose of this Code is to set out procedures for the selection of a contractor by means of a first stage competitive tender based on pricing documents related to preliminary design information, and which provide a level of pricing for subsequent negotiations, the production of a second stage tender by pricing, in accordance with the first stage tender, bills of quantities reflecting the completed design.
2.4 The procedure is more suited to large or complex schemes where close collaboration with the contractor during the design stage could be advantageous in that it enables the professional team to make use of the contractor's expertise and during the same period gives the contractor an opportunity to become involved in the planning of the project. Two stage tendering is sometimes seen as a means of achieving earlier commencement of the works by a reduction in the tendering period. …
9.0 Second Stage Procedures
9.1 The second stage is the process of finalisation by the employer's professional team in collaboration with the selected contractor of the design and development of production drawings for the whole project and the preparation of bills of quantities for the works priced on the basis of the first stage tender resulting in an acceptable sum for inclusion in a form of contract.
9.2 It will be advantageous if any prime cost sums included in the bills of quantities are based on quotations using JCT basic or alternative methods obtained concurrently with the preparation of the bills of quantities. … In pricing the bills of quantities on the basis of the first stage tender, account must be taken of any change in the circumstances affecting the works such as any modification in design or change of the anticipated contract period. The total of the monied out bills of quantities should be recommended to the employer for acceptance as the contract sum.
9.3. A contract will not be entered into nor works started on site until the second stage procedures have resulted in acceptance by the employer of this sum."
"The two-stage tender was not completed in the way, or the second stage was not completed in the way that we had anticipated in May….
Q. Perhaps we should look at [your statement] to start with:
'The purpose of the first stage tender was to establish a competitive basis for pricing preliminaries for the entire project and providing costing parameters for measured works as represented by the detailed measurement of early sections for which design proposals were well advanced. … By the time of the first stage tender, the design of escalators in Argos had essentially been finalised. Whilst I had originally expected more of the design to have been finalised by that stage, this had not occurred due to the fact that Plymco had still not decided what they wanted in respect of the remaining areas.'
Now, are you saying that less had been achieved by the time that the first stage tender was sent out, or are you saying that less was achieved between the first and the second stage tender?
A. By the time the first stage tender was sent out I had anticipated, when we discussed this in May, that the design would be an ongoing process, that I would be fed packages that I could pass on to my measuring surveyors to produce sections, bills of quantities sections that would go towards the second stage. When we had selected a contractor from the first stage we could then say to him: oh well, you know here is the plastering on the first floor and here is the suspended ceiling and here is the alterations to form this unit. I would expect to have been able to pass that on in packages.
Q. You could not?
A. No, we could not."[2]
"The effect of these factors is that taking a notional value of £5 million Pearce Construction [the lowest tenderer] is the most favourable tenderer, but because they have offered a higher "fixed cost" element they will become less competitive if the value is reduced. Conversely, if the fixed value of the project increases substantially, EBC Construction will become less favourable and Pearce Construction will represent better value."
"Further to your tender for the above works and our subsequent meeting with your colleagues on 28 October 1996 I write to confirm our Client's intention to enter into a contract for the works with your Company subject to finalisation of the stage 2 documentation.
In view of the timescales involved, I would ask you to accept this as a letter of intent to enable you to enter into arrangements to lease the office space from CIS and to place on order the materials needed for screens and hoardings for the first stages of the works.
We would also request that you make arrangements to commence site investigation works as needed …".
"Third Floor Offices – Throughout the Contract
All other locations – Prior to Phased Commencement and following section completion."
In other words, the contract envisaged that the phasing arrangements would be agreed between the contractor and ASM, as supervising officer and employer's representative, as work proceeded. However, the contract conditions did not allow for phasing within sections. Once possession of a section had been given to the contractor, the employer could only retake possession, prior to practical completion, by taking partial possession under clause 18 of the conditions. Although this condition allowed the parties to share possession, the effect of taking partial possession was, in accordance with clause 18, to treat that part of the works as being practically complete. Thus, it was essential for any phasing or temporary sharing arrangements of any part of an individual section, particularly section 8, to have been finalised and agreed between Plymco and the contractor prior to the contract being entered into and for those arrangements to be expressly built into the contract as an adjunct to the provision for shared possession contained in the bills of quantities that I have already set out above.
"No contract however procured and implemented is able to cope with changes of this magnitude in terms of phasing without a significant impact on the cost. As reference to the drawings reveals, the phases tended to get smaller as the work progressed, meaning loss of efficiency and volume discounts.
These costs are reflected in the substantial out of hours working, together with temporary screens to enclose the working areas. It also accounts for the volume of dayworks in addition to the out of hours working.
The changed working environment meant that even those areas procured at a cost per metre square rate in the appropriate BQ could not be valued in the same way and EBC and their domestic sub-contractors justifiably (i.e. as provided for in the contract) were able to claim daywork rates."
Cost and Cost Control
"Although much of the work has yet to be detailed, this figure represents the best assessment of the full value of the project based upon current information, and the expenditure against provisional amounts will be closely monitored and reported as work progresses."
Building Contract Cost Control Machinery.
"Where work cannot be described and given in items in accordance with these rules it shall be given as a Provisional Sum and identified as for either defined or undefined work as appropriate."
Undefined work, which was what the provisional sum work in the Co-operative House project was, was work where it was not possible to provide information as to the quantity or quantities of work sufficient to indicate the scope and extent of the work. For such work, unlike defined work, the contractor will not be taken to have made due allowance for it in programming, planning and pricing preliminaries. Thus, the recoverable sums for preliminaries will increase once the provisional sum work has been identified.
"The Contractor will, in conjunction with the appointed consultants, upon finalisation of the design and where possible prior to the agreement of the second stage tender, secure a minimum of 2 No competitive quotations from companies/organisations of his own choice and select and appoint a suitable subcontractor in conjunction with the appointed consultants."
ASM's Advice about Cost, Cost Control and Method of Procurement for the Co-operative House Project
"I enclose three copies of a programme for the Argos project, which I believe confirms the time parameters discussed.
You will see that there is no reference to the internal movement of retail departments and their fittings, stock etc and I have assumed that they will programme themselves around the requirements of the building programme and the phasing drawings.
I will prepare a further programme for retail units and associated remodelling of the department store when proposals have been firmed up a little more."
"… I can quote no definitive examples of when such chasing [for decisions on specifications and finishes] happened, to whom [ASM] made their requests, what information they were requesting and what the response of [Plymco] was. Their files do not record that information. If there were significant problems of this kind at the time, I would have expected to have been made aware of them and I was not. They are professional people. If they realised there was a problem and that [Plymco's] employees were not conducting themselves as they should, then why was that matter not referred to the highest level with an explanation of the implications for the project and to [Plymco] and with a recommendation? …
I was not made aware that an increase in the number of phases would lead to an increase in the costs. I have no recollection of such advice being given until 1997 when I started to question ASM generally about why the costs of the Project were getting out of control. At that point, one of the reasons given to me for the cost escalation was the phasing. I was not told before. … If ASM had advised me that the phasing etc had to be settled and set in stone to avoid additional costs of (%, then I would have acted on that advice. … all I can say is that in 1996 and during the early part of 1997 and indeed at any time through the project I was not advised or made aware by ASM that changes in phasing could have anything like the sort of implication. … In terms of what we could and could not have done in terms of making space available, there was flexibility. We, as retailers, wanted the open store to have representation of all its departments at all times but there was no particular requirement about space which is where the flexibility could have come in."
"Q. Can we then, please, take stock to see whether we can reach agreement about the following. When the decision to place the contract with EBC had been taken, we have not seen, have we, any written advice about progress or lack of progress in respect of design?
A. Not written, but these matters were discussed in meetings.
Q. Would you agree that there is no record of advice about the progress or lack of progress in respect of provisional sums?
A. Again, I mean it was something that was known about by virtue of constant meetings that were taking place with all parties. There may not be written advice about the progress or lack of progress in respect of phasing?
Q. Would you agree that there is no record of advice about the progress or lack of progress in respect of phasing?
A. At that stage, yes."
"we had previously discussed with Peter Ryland the option of a two-stage tender … this option was considered by Peter Ryland to be impracticable.".
That statement is clearly stating that the Argos first possibility had been discussed and dismissed as a possible strategy before and on an earlier occasion to the meeting on 23 May 1996 and was never raised as a subject for consideration thereafter.
"… it was more an idea that was floated rather than formal advice and it was an idea which did not really have any legs, no one seemed to think it was viable."
The second respect in which Mr Nicholls' evidence developed related to discussions with EBC between the first and second stage tenders. Mr Nicholls thought that he could remember one of EBC's managers, Mr Jude, raising the possibility of an Argos first solution during discussions about phasing. This was one of several possibilities being banded about and nothing came of the suggestion.
Breach of Duty
(1) Plymco's overriding requirement was that the cost of the work should not exceed £5 million - £5.5 million.
(2) Plymco had no expertise in property development or in the planning, design, procurement, cost control and expenditure monitoring involved in a complex construction project where both time and money would need to be tightly controlled.
(3) ASM never gave Plymco any advice as to the procurement method to be adopted or as to what was involved in a two-stage tendering procedure. ASM's advice that such a procurement method was the only appropriate method to use was merely accepted by everyone without further discussion or debate.
(4) Plymco relied on ASM to advise it throughout the pre-contract and contract stages of the work on what decisions it had to take and the dates by which it had to take those decisions to enable the work to be sufficiently designed and for the phasing arrangements to be sufficiently settled by the time the contract became effective to enable the work to be carried out within budget and so as to prevent avoidable additional costs arising from any factor associated with the late development of designs or phasing arrangements to accommodate Plymco's wishes. ASM did not give Plymco any appropriate advice in relation to these matters.
(5) ASM gave Plymco no advice as to the steps that Plymco should take to finalise its design and phasing requirements or as to the programme or timescale within which these steps should be taken; as to what savings Plymco should consider; as to what reliance, if any, Plymco could place on the costs and provisional sums inserted in the contract; as to what possible level of cost increase Plymco should be considering might arise or as to what steps it had to take to ensure that the cost of the project was adequately controlled.
(6) The Argos first method of executing the works was never considered in any detail and at no time did ASM evaluate this possibility or consider giving advice to Plymco that it should itself give serious thought to it as a possible method of proceeding.
(7) ASM never considered whether the state of the under-designed and ill-planned phasing arrangements in late October 1996 was such that the cost of the work would not be capable of being controlled or whether additional or alternative steps should be taken with regard to the scope of work and its manner of execution so as to enable costs to be controlled.
"If the court determines that Plymco's priority was for absolute cost certainty, then I am of the view that ASM should have advised not placing a contract with EBC until all decisions had been finalised by Plymco as regards the project scope of works and all production information had been prepared by the consultants. This scenario would have led to a later placement of contract and therefore a later start on site."
ASM's Alternative Case
"We agree that Argos First could have been carried out as a separate contract subject to the resolution of technical issues and practical considerations such as decanting of departments located in the area to be taken by Argos. Technical aspects that would have had to be considered would have included, for example:-
(a) the M & E Services;
(b) entrances and fire exits;
(c) fire escape routes.
"Argos First" would have delayed the balance of the remaining works until such time as a further contract was let."
It emerged in the evidence that the three respects in which a technical solution would have been needed to allow for an Argos First solution were readily capable of being satisfactorily dealt with at no significant additional cost.
Conclusion – Breach of Duty
7. Causation
Progress of Works
"We discussed other matters of concern which we feel need addressing, enabling us to progress the works in a proper controlled and economic manner:
1. Vacation of areas of the Store by Plymco to enable commencement of various works to agreed dates.
2. Decisions on key materials and various issues are not being taken in good time to enable our programme to be met, consequently materials and subcontractors are not being procured economically.
3. Adequate construction details and drawings for Section 4, which should have already commenced, have not been issued. Likewise, we should be planning works in Section 5, again no construction details have been received. Delays to JJB Sports unit are therefore likely already.
4. Instructions are being issued verbally, piecemeal or in part form, preventing us acting in a planned and correct fashion. We recommended a resident representative from the Architect may help this difficulty.
5. Certain key subcontractors selected by Plymco are not acting under our direction, as required. Instructions are passing direct to these and other nominated subcontractors without reference to us".
"[The alleged cost overrun] takes no account of increases in cost caused by matters outside ASM's control which as a matter of law were not caused by the matters complained of. Further, the overall cost of the project increased for, inter alia, the following reasons:
(1) Plymco's failure to give EBC timely and unrestricted access to the site. It was originally planned that work would commence on site on 1 November 1996. In the event, some access was provided to EBC from 25 November 1996, and access was increased as from January 1997. Even at that stage, EBC was not given full access.
(2) Decisions by Plymco to change the phasing of the works. EBC's original programme allowed for a small number of phases. At Plymco's request, the number of phases was increased with an inevitable loss of efficiency and consequential increase in out of hours working.
(3) The late provision of information/requirements by Plymco.
(4) The execution (on the instructions of Plymco) of works of greater quantity and of higher standard than was allowed for in the May 1996 estimate. Changes/variations to the works generally.
(5) Failure on the part of Plymco to omit work.
(6) The requirement to remove an unforeseen quantity of asbestos.
(7) EBC's claim under the building contract for loss and expense arising from the foregoing."
"13 Contract Bills
The quality and quantity of the work included in the Tender Price shall be deemed to be that which is set out in the Contract Bills.
14 Measurement and Valuation of work including Variations and provisional sums
14.1 The term 'Variation' as used in the Conditions means:
14.1.1 the alteration or modification of the design or quality of the Works including
1.1 the addition, omission or substitution of any work,
.1.2 the alteration of the kind or standard of any of the materials or goods to be used in the Works,
.1.3 the removal from the site of any work executed or materials or goods brought thereon by the Contractor for the purposes of the Works other than work, materials or goods which are not in accordance with the Contract;
14.1.2 the imposition by the Employer of any obligations or restrictions in regard to the matters set out in clauses 14.1.2.1 to 14.1.2.4 [which immediately follow] or the addition to or alteration or omission of any such obligations or restrictions so imposed or imposed by the Employer in the Contract Bills in regard to:
.2.1 access to the site or use of any specific parts of the site;
.2.2 limitations of working space;
.2.3 limitations of working hours;
.2.4 the execution or completion of the work in any specific order; …
14.2 The Architect may, subject to the Contractor's right of reasonable objection, … issue instructions requiring a Variation …
14.3 The Architect shall issue instructions in regard to:
14.3.1 … the expenditure of provisional sums included in the Contract Bills …
14.4 … all work carried out … in pursuance of the Architect's instructions under clauses 14.2 and 14.3.1 shall be valued by the Quantity Surveyor with the provisions of clauses 14.5.1 to 14.5.6 [providing for the valuation of variations] …
14.5.5 If :
as a result of compliance with any instruction requiring a Variation work shown on the Contract Drawings and included in the Tender Price is not executed and such instruction, or
compliance with any instruction as to the expenditure of a provisional sum for undefined work, …
substantially changes the conditions under which any other work is executed, then such work shall be valued [as a variation]."
ASM's Contentions as to Causation
"I cannot recall any advice being given at any stage between May 1996 and November 1996 of alternative options that we could consider, for example to carry out the Argos works only (the only obligation the Society had when we entered into the Building Contract … was under the terms of its agreement for lease with Argos) … I would remember such advice being given to me … I do not accept or believe that ASM ever advised myself or anybody in the Society of the possibility of just carrying out the Argos works starting in November/December 1996. Had we been warned of the uncertainty over the outturn costs and advised of the possibility of just carrying out the Argos work starting November/December 1996 whilst we continued to develop the rest of the scheme, the Society would have acted on that advice and insisted that the balance of the scheme was fully developed to provide us with cost certainty and to allow us to carry out the works for a competitively tendered sum."
Mr Fletcher repeated this evidence in other passages in his written evidence and in cross-examination. Nothing in Mr Ryland's evidence contradicted that evidence.
Conclusion
8. Loss – Argos First
Introduction
Method of Calculating Loss in Principle
Top Down Method
Top Down Method – Main Quantum Issues
Issue 1 – Omitted Works
Issue 2 – Electrical Installation
Issue 3 – Daywork + BWIC
Issue 4 – Premium cost adjustment
"Q. Judge Thornton: But I understand your evidence to be that your complaint is that the way that the work was contracted was that so much of it, so much of the builder's work, was provisional in the way it was found in the contract, that is to say global lump sum figures with very general global descriptions of the work, whereas with a bit more time it would have been possible to firm up the work sufficiently to enable a great proportion of that work to be the subject of a bill of quantities and rates.
A. Yes.
Q. Judge Thornton: It may well be that much of the work that was billed in that way, had it been billed, would not have been the final work actually required by the employer. There might well have been variations.
A. Yes.
Q. Judge Thornton: Some of the items may have been approximate quantities, some of them may indeed have been rather than provisional in the loose sense, provisional in the second clearer sense.
A. Yes.
Q. Judge Thornton: But the advantage, cost-wise, of all of that is that there would then have been a clear pricing mechanism by way of rates or analogous rates which would have been tendered for at the outset which would have enabled the work, when finally executed in whatever final version of the work, to be the subject of that kind of measurement and value?
A. That is correct.
Q. Judge Thornton: And it is in that sense that you are saying that the provisional element of the work was unsatisfactory?
A. Yes, that is absolutely right, my Lord, and I should make it clear that the premium adjustment I have made for uncompetitive pricing I have only made on the provisional sum work, on the EBC work."
Issue 5 – Appendix 3 Items
Balancing Item and Prelims
Minor Items of Dispute
Total Cost of Works
Bottom Up Calculation
Overall Conclusion
Issue 1 | Omitted works | 550,000.00 |
Issue 2 | Elect installation | 1,140,000.00 |
Issue 3 | Daywork + BWIC | 546,683.00 |
Issue 4 | Premium Cost adjustment | -364,244.00 |
Issue 5 | Appendix 3 items | 497,800.00 |
Balancing item | 0.00 | |
Measured items 1 - 4 | 936,343.00 | |
PC sums | 1,827,000.00 | |
Assessed items | 1,114,745.50 | |
Sub-Total | 6,248,327.50 | |
Prelims @ 6% | 374,899.65 | |
Total excl Argos | 6,623,227.15 | |
Argos | 572,406.5 | |
Total Hypothetical Cost | £7,195,633.65 |
9. Savings Claims
Overall Conclusion
10. Judgment
HH Judge Thornton QC
Technology and Construction Court