Lump Sum Scope: Whose Risk is it Anyway?

/ FSU Law Ltd/

E.ON was contracted to build an underground district heat network for Barts Square, a large, luxurious residential development in the City of London. The network was to consist of low-temperature hot water and chilled water pipes to supply heating and cooling from E.ON’s Combined Heat and Power Plant in the old Port of London Authority building in West Smithfield.

The project involved the excavation of trenches along various roads for the installation of pipework.  In the City of London there are often significant potential obstructions, ranging from services to archaeological finds and unexploded bombs from World War II.

E.ON sub-contracted the excavation of the trenches and installation of the pipework to Clancy Docwra Limited, following a tender. In March 2017 E.ON instructed Clancy to investigate a concrete obstruction to identify its contents and/or a route around it. Clancy thought that the proposed excavation was dangerous and stopped work. E.ON’s view was that the sub-surface conditions were at Clancy’s risk and on 9 May 2017 served a Notice of Specified Default on Clancy.

The dispute concerned the following:

  1. whether the works fell within the contracted scope or whether Clancy was entitled to a variation; and 

  2. the allocation of risk in respect of ground conditions.

Clancy referred the dispute to adjudication. The adjudicator decided the dispute in E.ON’s favour.

Clancy appealed the adjudicator’s decision to the High Court in October 2017, seeking a confirmation of its interpretation of the Sub-Contract and, in the alternative, rectification of the Sub-Contract.

From the witness statements, it is clear that E.ON thought that it had placed an all-risk contract and hoped or believed that the terms of the contract had achieved this. However, the High Court held that the definition of the Scope of Works included Clancy’s post-tender clarifications, thereby limiting the work and risk contracted for by Clancy.

The overarching lesson learnt is that a scope of work can trump everything: from the order of precedence of contractual documents, assumptions, confirmations of compliance with the ITT, to the risk allocation provisions and the order of precedence of contractual documents.

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