Administration of a modern EPC (engineering, procurement and construction) contract is difficult. They are highly prescriptive in respect of administrative procedures. For the people dealing with the everyday challenges of driving the works forward, it sometimes seems that the contracts were written in a different universe: a clean and precise place that reflects nobody’s reality.
This is where parties (and contract administrators) sometimes decide, tacitly, to deviate from the prescribed procedures, for speed and efficiency. And this works fine until the parties fall out, at which point they both get the contract out of the drawer, to work out whether they might be advantaged or disadvantaged by that deviation.
Which takes us to some difficulties that occurred recently on a project in Trinidad. The Water and Sewerage Authority of Trinidad and Tobago (the Water and Sewerage Authority) engaged Uniform Building Contractors (Uniform) to engineer and install a wastewater pipeline. The lumpsum EPC was an amended FIDIC Yellow Book (Conditions for Plant and Design-Build) First Edition.
A lot of readers will be familiar with the FIDIC approach to variations (scope changes) which involves timed stages beginning with a proposed scope change, then a contractor’s estimate of the time, cost and other impacts, leading to an employer’s decision on issuing a final variation order. If the value of an instructed variation had not been agreed before issue, it would be determined by the engineer. And if an instruction constitutes an imputed variation, the route to entitlement is a claim under cl.20.
The parties fell into dispute. The Water and Sewerage Authority terminated the contract and Uniform subsequently made monetary claims related to alleged variations they had implemented. They were:
(i) Laying pipework in the roadway, as opposed to the verges, which required the cutting of the asphalt surface;
(ii) The removal of excavated material deemed to be unsuitable as backfill; and consequently
(iii) The importation of suitable backfill; and
(iv) Night work.
The Water and Sewerage Authority denied that these were variations and argued that even if they had been variations, the variations procedure and the claims procedure (the time bar in which was a condition precedent to entitlement) had anyway not been followed. And that any deviation is a contract amendment, which the engineer is not authorised to make. In response, Uniform brought evidence that the engineer had approved the above works informally and that the authority was aware that they were being performed.
The passage of this case through the courts is interesting as it illustrates two entirely different approaches to the question of divergent procedure and whether it amounts to an amendment to the contract.
The Trinidad Hight Court dismissed Uniform’s claim, stating that Uniform’s undertaking of the above activities (if they were variations) without a formal final variation Order was at its own risk.
The Court of Appeal reversed this decision, taking the view that:
“…while the contract may have provided for notice in writing for changes, it is clear that [the Authority], through the site engineer, waived these requirements... Discussions occurred on an on-going basis on site and adjustments were made. As [the engineer] explained, his priority was in getting the project done. There was also clear evidence that [the Authority] was given notice of the change of the prices for materials from the bill of quantities and that no objection was taken to those changes... It would be fundamentally unfair in the circumstances after the engineer had approved the works being done and agreed they were variations for which additional payments were to be made later on, for [the Authority] to seek, after the fact, to dispute that these additional payments did not arise.”
And crucially, the Court of Appeal did not consider the procedural divergence to be a purported contract amendment, saying that “Parties are entitled to mutually agree a different method of performance.”
On further appeal, the Judicial Committee of the Privy Council disagreed entirely. They found that the divergence from the formal variations procedure amounted to a purported amendment to the contract, which the engineer was not empowered to do; and the committee was not persuaded that the Water and Sewerage Authority itself had agreed any such amendment.
The committee said that waiver and estoppel had not been pleaded or evidenced at trial and could not be introduced at appeal; and, in any event, the engineer was also expressly not authorised to relieve either party of its contractual obligations.
Notable, these two higher courts also took opposite views on the question of whether the above works were variations. The committee found that they were not, as they were covered in the lump sum price.
This is a reminder for parties and administrators that they cannot depart from procedure and assume that this is risk-free because they have “an understanding”. But equally this is not to say that waiver, estoppel and ad-hoc contract amendment are ineffective. This result might have been different if the contract had been self-administered by the employer (as in, say, the FIDIC Silver Book). And if estoppel had been pleaded. And if the works in question were, in fact, variations. Apart from those obstacles, this was a good claim!
* 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.