Do variation clauses permit the suspension or acceleration of construction works?
A recent TCC decision has found that a variation clause entitled an employer to postpone the commencement of construction work to an unspecified future date. Variation clauses often contain wording permitting the timing of work to be varied, but this appears to be the first time an English court has considered such a provision. The broad interpretation given by the court highlights the risks of including such wording within a variation power.
Variations as to timing
Construction contracts generally contain one or more of the following types of clauses which permit an employer to regulate the timing of the works:
- Clauses which permit an employer to instruct the contractor to recover existing delays to the works. Such a right is provided in the FIDIC 1st Edition contracts in relation to delays which are the contractor’s responsibility. The 2nd Edition contracts expand this power to include delays for which the contractor is entitled to an extension of time.
- Clauses which allow an employer to call for an acceleration proposal from the contractor, which may then be accepted by the employer. The NEC3 and NEC4 ECC contracts provide an example of such a power (although in both the contractor may decline to provide a proposal).
- Suspension clauses, enabling an employer to pause the carrying out of the works, exist in many standard form contracts including the JCT, FIDIC, LOGIC, IChemE and ICC contracts, but not in the NEC.
- Broadly worded variation clauses, which allow an employer to vary the timing of the Works. For example, the FIDIC 1st Edition contracts permit the instruction of variations as to the “sequence or timing of the execution of the Works”. Similar powers are included in the IChemE, ICC and LOGIC contracts, with narrower wording in the JCT and NEC forms.
Caselaw on the interpretation of such clauses is rare, particularly with regard to broadly worded variation clauses. It is sometimes said that such clauses should not be given too literal an interpretation to confer an unqualified right to instruct acceleration. For example, the writers of FIDIC Contracts: Law and Practice contend that the FIDIC variation power quoted above “does not give the Engineer the power to instruct the Contractor to accelerate to complete the Works or a Section before the Time for Completion”.
Grain Communications Ltd v Shepherd Groundworks Ltd
Shepherd and Grain Communications Ltd (“GCL”) were parties to a framework agreement for construction works relating to wireless telecommunication. Under the framework agreement, GCL could issue a work order instructing Shepherd to undertake certain works, which Shepherd was able to accept or decline. The parties had previously entered into 68 work orders under the same framework agreement. Under the work order terms and conditions, GCL had the power to vary the work, which was defined as “any addition to, omission from or other change in the Works or the period or order in which they are to be carried out”.
The day before the commencement of work under work order 11500, GCL informed Shepherd that it was not to proceed. The next day, GCL confirmed in an email that it was unlikely Shepherd would be able to commence works before the end of the year and it would “keep in touch […] regarding our programme for the Works under these Work Orders and […] let you know when anything changes”.
Shepherd commenced adjudication proceedings and obtained a decision entitling it to recover loss of profit and/or mobilisation and demobilisation costs arising from work order 11500. The adjudicator found that GCL’s email had amounted to an unjustified cancellation of the work order. GCL brought TCC proceedings to overturn the adjudicator’s decision.
Variation upheld
The TCC held that the variation provisions permitted GCL to postpone commencement of the works and that the telephone discussion and follow up email were “all that was required” to instruct a variation. In the court’s view, the adjudicator had failed to recognise that the variation provisions expressly permitted the “period” in which the works were to be carried out to be changed. As GCL had noted that it still intended to continue with the work order, there was no cancellation but only a change in the period for carrying out the works. The court also rejected the need for any implied restriction on the variation power, noting that this was not necessary to give business efficacy to the contract and would contradict the express wording of the variation provisions.
Conclusion and implications
This is a significant decision which appears to be the only English case to have considered a variation power in relation to the timing of works. In contrast to the adjudicator, it is evident that the court adopted a broad and literal approach to the language of the variation provision. There are a number of ways in which this language could have been more narrowly interpreted. For example:
- The “period … in which [the works] are to be carried out” could have referred only to the duration of the works and not their commencement date.
- Or if a change in the commencement date were thought to be intended, a change to the “period” of the works in that sense could have required a new commencement date to be instructed and not for the works merely to be suspended pending further instruction.
The court’s decision, therefore, highlights the risk in agreeing to include such broad language within a variation clause. The wording in the present case was found to effectively confer a right of suspension and raises a question as to whether the same approach would have also permitted an instruction to accelerate the works by reducing the period in which the works were to be carried out.
Parties considering such language within their contracts would be well advised to clarify the operation of such wording and, where rights of suspension and/or acceleration are intended, to include specific clauses dealing with those issues like those noted at the beginning of this Law-Now.
References:
FIDIC Contracts: Law and Practice, Baker et al. 1st Ed (2009)
Grain Communications Ltd v Shepherd Groundworks Ltd [2024] EWHC 3067 (TCC)
