Cases - Mowlem plc v Newton Street Ltd

Record details

Name

Mowlem plc v Newton Street Ltd

Date

(2003)

Citation

89 ConLR 153

Keywords

Building contract - JCT Standard Form of Building Contract with Contractor's Design 1998 Edn - whether an instruction to carry out remedial works amounted to an employer's change

Summary

A popular method of securing greater cost and programme certainty during the procurement or early part of a construction process is through the use of a guaranteed maximum price (GMP). This is generally used with traditional (single-stage or two-stage) lump-sum contracts. At the appropriate time, perhaps after receipt of initial tenders, or when sufficient work elements have been procured, discussions are held with one or more contractors to convert the contract to a GMP arrangement.

The 'guaranteed' element applies to the defined non-material changes and does not include material changes. For this reason, care must be taken in both drawing up the contract and in reaching a mutual understanding, to prevent future debate and arguments.

Should the costs exceed the GMP, then after allowing for material changes to the employer's requirements, the contractor bears the cost. However, the contractor benefits should he or she construct at less than the GMP.

Alternatively, a 'share gain/share pain' arrangement can be used, whereby if the cost exceeds the GMP the contractor and employer share the overspend, and likewise share any saving if the cost falls below the GMP. This arrangement provides an incentive for the contractor to manage efficiently the tendering and construction process and the agreement of accounts with sub-contractors.

The case of Mowlem plc v Newton Street Ltd [2003] reviewed the extent of the responsibilities under a GMP amendment to a standard form of contract. The case concerned the conversion of a very old post office and Mowlem was found to be responsible for repairs to the existing structure; repairs that it could not have reasonably foreseen or quantified. An outcome of the case is that, due to the perceived extensive responsibilities of a GMP contractor, a high risk premium may be paid by an employer if the nature of its project involves unquantifiable risks. So, whereas a new build commercial development may lend itself to a GMP arrangement, conversion of an old post office may not.