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A New Year’s resolution: read the whole contract before you sign it

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Summary: It’s the time of year when many of us may be looking to adopt good habits for our New Year’s resolutions. For those tasked with reviewing and agreeing contract documents – in particular the technical and pricing documents – the recent decision of Coulson J in Dynniq UK Ltd v Lancashire County Council may provide some timely inspiration.

The case involved interpreting wording within pricing documents of a term service contract, and afforded Coulson J the opportunity to remind us of the established principles of contract interpretation.

However, what surprised me when reading this case was not these principles – or the court’s application of them – but the fact that this dispute had come so far in the first place. This is especially given that the TCC found that the proper interpretation “[does not give] rise to any real difficulties at all” and that there is “no lack of clarity in the words” which were at issue.

This got me thinking about the importance of fully appreciating the wording used in the pricing documents and other technical annexures to a contract (even where the contract is based on an industry standard form) and the effect this may have on the contract’s operation.

What was the issue?

The contract in question was a term service contract between Lancashire County Council and a contractor (Dynniq) for the maintenance of traffic signal installations and the construction of new or replacement traffic signal installations.

The contract was based on the NEC3 Term Service Contract with Pricing Option A, under which task orders for specific works could be issued. The total price payable to the contractor under a task order was to be based on lump sum prices and/or rates for specific items, as set out in the Price List for the relevant items of work carried out under that task order.

Further provisions relating to calculation of the price were included in a separate schedule, which clarified that the prices/rates in the Price List were deemed to be the full and inclusive value of the work covered by various specific listed items, including:

“… traffic safety and management within and/or adjacent to the [property]”.

This specific item in the list (but not the others) was supplemented by an additional proviso, which stated that:

“Traffic and safety management shall only be separately measured under [the relevant section of the Price List] when instructed on a Task Order by the [Council] for the exclusive use by or for the benefit of the [Council] or one or more third party.”

The Price List itself then included a specific section entitled “Traffic and Safety Management”. Unlike any other section of the Price List, this section was also prefaced with a note in equivalent terms to the proviso highlighted above.

The dispute between the council and the contractor related to how traffic and safety management items should be priced under the agreement. Broadly speaking, the issue was whether:

  • The contractor was entitled to be paid for traffic safety and management items separately and in addition to traffic signal maintenance works in every case and for each task order (as the contractor argued).
  • The costs of traffic and safety management items were deemed to be included in the prices for other items in the Price List, so could not be claimed separately to these items under a task order (as the council argued). The council acknowledged that the contractor was entitled to be paid separately for traffic safety and management where such matters were the substantive subject of the task order, rather than being incidental to other work required under it.

The wording of the contract was clear 

Unsurprisingly (in my view) Coulson J had no difficulty in holding in favour of the council. In doing so, he helpfully provided a succinct summary of how the relevant provisions should be interpreted:

“What matters is the objective meaning of the language used, to be derived from the natural usual meaning of the words in the contract, when seen against the background/context of the contract. Where there are rival interpretations, one test is to consider which interpretation is more consistent with business common sense.”

While it was acknowledged that the council’s approach (that traffic and safety items were not to be separately paid for in every case) may be unusual and out of line with the way in which such works are ordinarily measured, Coulson J found that this approach reflected “the clear and unequivocal meaning of the words used in the contract.”

Lessons to be learnt

For me, the most telling part of the judgment was Coulson J’s suggestion, on the basis of witness evidence, that the contractor at the time of tender “simply failed to read the relevant provisions, and so simply assumed that this was a standard form contract without these bespoke amendments.”

The practical point here (and perhaps quite an obvious one) is this: Parties need to be alive to any wording within a contract which changes the “usual” position or standard form approach. Where the effect of such wording is clear – even if included (as here) in the technical or pricing documents – parties will not be able to rely on what is common practice, if this is contrary to the words used.

While those with the relevant technical expertise will likely (and rightly) be the ones tasked with reviewing pricing schedules and other technical information at tender stage, it would be good practice for them not to review these documents in isolation from the remainder of the contract – or to assume that a Price List will simply consist of a list of prices!

Instead, a careful review of these documents should ensure that any provisions which relate to the mechanics of the contract are fully appreciated and considered in the context of the contract as a whole.

Anecdotal evidence tells me that around 80% of people fail to stick to their New Year’s resolutions for longer than 6 weeks. Perhaps the decision in Dynniq will encourage those tasked with reviewing tender documents to adopt good habits for a little longer!
 

A version of this expert insight first appeared on the Practical Law Construction blog on 30 January 2018.

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