Today we are looking at a dispute about contract interpretation, centered on site conditions risk. The case is interesting, both in itself and in illustrating some problematic habits (not least in this region) in the way construction contracts are assembled. Here it is.

A developer, Capital & Centric (Rose) Ltd (CCR) engaged a contractor John Sisk & Son Ltd (Sisk) under a design-and-build contract for works including to existing mill buildings. Sisk encountered problems with the existing structure and made claims for extension of time and for a contract price adjustment. CCR rejected those claims as it considered that, according to the contract, the risk of such conditions lay with Sisk.

The contract is a tale of two halves. The conditions include typical “all-inclusive tender” provisions, the most relevant being:

•             The contractor has had the opportunity to inspect site conditions including existing structures and is deemed to have done so;

•             The contractor is deemed to have satisfied itself as to other risks and circumstances affecting the works; and

•             The employer makes no representation as to those site and structure conditions, nor as to any information provided.

This looks good for CCR but the contract also provided that all of the above were “subject to item 2 of the Clarifications”. This was reference to a particular tender clarification included in the Employer’s Requirements. Here, Sisk asked for clarification on the risk related to existing structures, being their ability to support and to facilitate the proposed works. The CCR response was:

•             Employer to insure the existing structures/works; and

•             Employer can get a warranty from Arup (structural engineers) as to the suitability of the proposed works. Employer risk.

In a separate tender clarification request (not an express qualification to the above contract conditions), Sisk asked for confirmation that “Existing Structures Risk sits with the Employer including insurance” and for an employer warranty as to the suitability of the existing structures to facilitate the works. CCR flatly refused both requests. The final “Position Agreed/Discussed in Meeting 22/03/2022” on that request recorded that the employer would insure the existing structures.

This dispute was first referred to adjudication, at which the adjudicator agreed with CCR, finding that Sisk was solely responsible for the risk of ground conditions including existing structures. Sisk took it to the Technology & Construction Court (TCC) in England, which found in favour of Sisk.

The TCC agreed that the “all-inclusive tender” contract conditions were subject to, and effectively superseded by, item 2 of the clarifications which clearly placed the risk of the existing structures with the employer.

In looking at the other tender clarification, the court noted CCR’s point that it had flatly refused the request for a warranty on suitability of the existing structures but equally, there was no statement that the contractor had accepted that refusal. The recorded conclusion to that clarification was that the employer would insure the existing structure. CCR argued that this meant that it held no risk related to existing structures, only the obligation to insure them. The court disagreed. These are two different questions, although Sisk itself appears to have conflated the two questions in its clarification request as to “Existing Structures Risk…including insurance”.      

As an exercise in contract interpretation, the court’s decision and reasoning are clear. More interesting in this case are the examples of the most common pitfalls in assembling construction contracts. We can look at two of them briefly:

First is the inclusion of tender clarifications in the contract. This is done as a shortcut way to state the agreed position on technical issues. However, the inclusion of the preceding discussion brings the risk of ambiguity because the “agreed position” (if one is stated at all) often does not definitively settle every question or contention raised in that preceding discussion – as happened in this case where a broad clarification request about risk related to suitability of existing structures was concluded (but was not answered at all) with a reference to insurance.

Second is the use of the word “risk” in a contract, without specifying what that means in terms of precise entitlements, obligations and liabilities. Technical appendices are more likely to refer to “risk” and not just in tender clarifications. Risk Registers and Division of Responsibilities tables can also be blunt instruments if they purport to allocate “risk” with a single X in a column, when in fact the position involves the interaction of several contract provisions.

A case in point: the court here was able to identify the meaning of the undefined term “Employer Risk” from the contractor’s clarification request which was expressly about the “ability of the existing structures to support/facilitate the proposed works”. That worked for the purposes of this dispute, as the court was asked only to decide the question of time extension and money claims. But what if the completed works turn out to be unstable and unusable because the existing structures are not able to support them? Does the contractual clarification “Employer Risk” stretch to relieving the contractor of its warranties? Even in the case of a design-construct contractor?

Interesting questions. Potential disputes.

* Dubai-based Stuart Jordan is the Global Head of Construction for Baker Botts, a leading international law firm.  He has extensive experience in the Middle East, Russia and the UK.