|Previously, Shy Jackson discussed the 2017 case Northern Ireland Housing Executive v. Healthy Buildings (Ireland) Limited in an article entitled, ‘Assessing compensation events retrospectively’. In my view the entire case should have been avoided.|
Records must be made available to employer
The case arose from a review arbitration during a NEC3 Professional Services Contract (PSC) option G (term contract). The employer required the consultant to provide its actual records and costs relating to a compensation event arising from an instruction which changed the scope.The consultant refused on the basis that actual costs were irrelevant to assessing its claim. NEC3 PSC covers this in core clause 52.2, which reads, ‘The Consultant keeps accounts and records of his Time Charge and his expenses, and allows the Employer to inspect them at any time within working hours.’
Indeed it would have taken an adjudicator no time at all to decide the consultant must make its records available to the employer.
However, instead of opting for a simple djudication, the litigants, ‘agreed that the matter was more appropriately dealt with by way of preliminary issues in the review arbitration.
The litigants formulated the following two questions for the court to consider in the hope that the answers would resolve the dispute concerning disclosure.
- On the true construction of the contract, and in particular clauses 60 to 65 of the contract, is the assessment of the compensation event calculated by the reference to the forecast time charge or the actual cost incurred by the consultant?
- Are the actual costs relevant to the assessment process in clauses 60 to 65 of the contract
Compensation event did not change prices
For a start, the first question is formulated incorrectly. Core clause 63.1, although under the heading ‘Assessing compensation events’, does not provide for the assessment of a compensation event, but rather it deals with ‘the changes to the Prices’, which changes ‘are assessed as the effect of the compensation event upon … the forecast Time Charge of the work not yet done.’
The consultant argued that the employer’s instruction required the consultant to take more samples than was required in the initial scope of the work and that this constituted extra work not envisaged originally in the contract. In other words, the consultant had to do more of the same service than it was obliged to do in terms of the original contract, and for which there was an agreed staff rate. As the compensation event only increased the time required to provide the services, it did not require new staff rates to be added to the prices.
The staff rates are usually expressed at a staff member’s rate per hour, and after any particular staff member properly performs work, the consultant is remunerated on a monthly basis by the employer in terms of core clause 50. If the employer was to fail to pay the amount due to the consultant for the price for services provided to date in terms of core clause 50, a simple referral of the dispute to the adjudicator would resolve the matter.
As such, the answers to both parts of the first question should have been in the negative.
Actual costs were not relevant to assessment process
The answer to the second question, ‘Are the actual costs relevant to the assessment process of clauses 60 to 65 of the contract?’ should also have been in the negative. If the consultant tendered a low staff rate to the employer, this price is not changed if the consultant were required to do more work at this low contractual staff rate.
The PSC makes no reference to actual costs of either the consultant or employer, and such actual costs have no bearing on the prices. There is no need to examine the actual costs of the parties, as actual costs are irrelevant in the determination of the prices.
The resolution of the dispute between the parties concerning discovery of the consultant’s actual records and costs is contained within the PSC itself.
It neither justified an application to court, nor warranted an interpretation by the judge of the terms of the contract, or the assessment of ‘compensation’ to the consultant, or the examination of the method of calculating such ‘compensation’.
As the judge stated, ‘It is not about damages for breach of contract,’ and, ‘I am not left in a real state of uncertainty as to the correct interpretation of the contract’.
The judge’s passing observation as to the interpretation of the contract is not supported by the terms of the PSC.