Faults of omission
Client variations are a common feature of construction projects. Clients frequently change their minds about design and often instruct further works under their building contracts. What happens however where a client wishes to take work away from its contractor? Are there any limitations on the nature and scope of omissions the client can instruct under its building contract?
There is no right under common law for a client to vary the scope of works under a contract (whether by addition, variation or omission) without the contractor’s consent. The contract must therefore include an express right for the client to omit works if it wishes to do so without the contractor’s consent.
Most building contracts (including the JCT suite) expressly entitle the client to instruct variations to the works, including omissions. The extent to which the courts will permit a client to omit works will however depend upon the precise wording of the contract and the particular facts of the case.
The general approach of the courts has been that, once appointed, a contractor should be entitled to complete the works in their entirety and that it will take clear words to displace this presumption. Whilst the cases are drafting and fact specific, the courts are wary of clients looking to use omissions clauses to take away from the contractor the whole or a substantial part of the works.
Bargain hunting forbidden
In the leading case of Abbey Developments v PP Brickwork, the judge held that“…the basic bargain struck between the employer and the contractor has to be honoured and an employer who finds that it has entered into what he might regard as a bad bargain is not allowed to escape from it by the use of the omissions clause so as to enable it then to try and get a better bargain by having the work done by somebody else”.
However, the judge went on to say that if the wording of the contract is sufficiently clear, an omission may not amount to a breach of contract. The answer will depend upon the breadth of the drafting of the omissions clause and whether the omission is consistent with the intention of the clause.
Where a client omits works in breach of its contractual rights, the courts are likely to hold the client liable for loss of profit on the works which have been unlawfully omitted under the contract. If the unlawful omission is significant enough, this may amount to a repudiatory breach of contract (see in plain English section).
The messages to take home are that:
first, if the client wishes to omit works under its contract, it will need an express right to do so in its contract;
secondly, that the client must not abuse the purpose of the omission clause;
thirdly that if the client wishes to reserve the right to omit works and award these to a third party contractor, it must have a clear right to do so under the contract; and
lastly that if the client does not want to be liable for loss of profit on omitted elements, this also needs to be clearly stated.
The greater the scale of the proposed omission though, the greater the risk of this being challenged by the contractor on the basis that the omission defeats the basic bargain between the client and the contractor. In short, take care when looking to omit works and check the terms of the building contract.
In plain English – repudiation
A party to a contract is deemed to be in repudiatory breach if it shows its intention no longer to be bound by the terms of the contract. A party may be held to be in repudiatory breach, for example, if it abandons or walks away from the contract. In the context of omission of works, if the client unlawfully omits some or all of the works from the contract, the contractor may be able to argue that the client is showing an intention no longer to be bound by the terms of the contract as it is essentially taking the works away from the contractor.
The occurrence of the repudiatory breach does not itself terminate the contract, the innocent party has to accept the repudiation. If a repudiatory breach is accepted, both parties are discharged from any further obligations under the contract and the innocent party can claim damages, including loss of profit.
Source: RIBA Journal