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Floods of Queensferry Ltd v Shand Construction Ltd [1999]TCC BLR319

Daniel Atkinson 04 November 2001

KEYWORDS: FCEC Blue Form, Variations, Valuation, FCEC Rates, Dayworks, SubContract, Judge Lloyd.

Shand entered in to a main contract with the Secretary of State for Wales for the construction of the A494 Mold bypass essentially under the ICE 5th Edition.  Floods of Queensferry (FOQ) subcontracted with Shand to carry out the earthworks on the FCEC Blue Form of SubContract.

Progress and completion of the earthworks were disrupted and delayed by various matters, many of which were claimed to be breaches of SubContract.  The claims were categorised by His Honour Judge Humphrey Lloyd as measured work claims and damages for breach of the SubContract.

The judge suggested and the parties agreed to an experimental Ad Hoc Procedure, as a form of Alternative Dispute Resolution, for the measurement claims, in which the judge sat down informally with the quantity surveyors with Junior Counsel present, to discuss the respective positions with them and to give an initial and provisional reaction.  The procedure could be terminated at any time by the parties or the judge without any adverse reflection or comment by anybody.  As a result the parties were able to reach agreement on some of the CVIs which avoided having to deal with virtually all the other CVIs.  The judge recorded his views on the issues since they were implicit in or in his approach to other decisions.

Payment for work on a daywork basis under Clause 9(2) of the FCEC Form of Contract by applying national schedules such as those in the FCEC Schedule of Rates (sometimes referred to as daywork rates) was not likely to be awarded readily.  Clause 9(2) required the valuation of variations to be fair and reasonable.  Where, in general, contract rates and prices were not readily available or appropriate and where the contractor's actual costs of labour, plant and materials reasonably and properly incurred could be established with an acceptable degree of certainty, then those figures, together with an appropriate addition for site and head office overheads and profit, would produce a fair and reasonable valuation.  If the use of the FCEC Schedule provided a figure markedly in excess of that which would be arrived at in that way then the result would probably not be considered as fair and reasonable and the same would apply vice versa.  Judge Lloyd observed that in some circumstances payment on such a basis  would not truly reflect the tangible, if not readily quantifiable, costs of disruption and of the effect of diversion of resources which might otherwise have been efficiently engaged on productive work.  There may however be occasions when it is not fair and reasonable to use rates, modified rates or actual cost derived from hire or invoice rates and when dayworks/FCEC rates will be the only fair method.  Such a situation was where the contractor has ordered  subcontract work primarily for its own benefit and which intruded on the SubContractor's operations.  Although the work is not ordered on a daywork basis under Clause 9(5), a fair valuation should be made on that basis using FCEC rates to take into account the fact that it disrupts the SubContractor's operations.

Judge Lloyd also made observations on the valuation of standing time.  In this case the head of claim could be divided into two parts: prevention and inclement weather.  He decided that prevention was to be treated as a breach of contract, and the basis of assessment must be that of assessment of damages for breach of contract.  This included actual costs directly and reasonably incurred.  Where there was agreement of standing time rates, generally that was for contractual purposes only and did not normally contemplate their use for breach of contract.  Care must be taken to ensure that if there is a payment at standing time rate it does cover all the type of loss which flow from the breach of contract.  Subject to that the use of standing time rates may well be appropriate.  In the case of weather, the approach to the assessment of working in periods of bad weather or winter working should be carried out on an actual basis rather than any hypothetical basis, by which Judge Lloyd appears to have meant FCEC rates.

One substantial issue was required to be decided by Judge Lloyd which fell outside the ADR approach and was referred to as "Credit Notes"