Construction Contracts: No implied obligation to “get on with it”

An issue that regularly crops-up in practice, but rarely before the courts, is whether a contractor is subject to an obligation to progress its works in a “regular and diligent” or similar manner, and if so what this actually means. In a judgment handed down yesterday, the TCC decided that a subcontractor was not under any implied obligation to proceed with its works “regularly and diligently”. The same is likely to be true for main contractors and others involved in construction projects.

The Facts

The case concerned a groundworks subcontract. The main contractor initially claimed that the subcontractor was obliged to perform its works in accordance with an Activity Schedule that set out activities and by when they were to be completed. The subcontractor, it was claimed, was late in the performance of its works as against the Activity Schedule, and the main contractor alleged that it suffered a loss due to the subcontractor’s delay. The main contractor sought to withhold damages for delay from amounts otherwise due to the subcontractor.

Later on, and before the TCC, the main contractor accepted that the Activity Schedule was not binding on the subcontractor. Nevertheless, it maintained that the subcontractor was subject to an implied obligation to proceed “regularly and diligently” with its works, and in this context that meant following the Activity Schedule. Because the subcontractor had not followed the Activity Schedule – the argument went – it had breached its implied duty to proceed “regularly and diligently”, and therefore it was liable to pay damages to the main contractor for its tardy performance.

The Court’s Decision

Mr Justice Coulson rejected the main contractor’s arguments. In order for a term such as an obligation to proceed “regularly and diligently” to be implied into a contract, it must (among other things) be necessary to imply that term to make the contract work, from a business point of view. Here, there was no need to imply such a term, as the contract could still operate in a workable manner without the subcontractor being required to work in a “regular and diligent” manner. If, for example, the subcontractor was so irregular and lacking in diligence that it failed to complete its works by the stipulated date in the subcontract, the main contractor would be entitled to claim damages for late completion.

The court’s conclusion was fortified by the termination provisions of the subcontract, which permitted the main contractor to terminate the subcontract if the subcontractor failed to proceed with the works in a regular and diligent manner. This suggested that the parties had turned their minds to the issue of whether the subcontractor should be required to proceed “regularly and diligently”, and what consequences (if any) should flow from a lack of regularity and diligence. Although there was an express power to terminate the subcontract should the subcontractor fail to proceed “regularly and diligently”, this did not mean that the subcontractor was subject to an implied obligation to work in a regular and diligent manner, so that it would be liable to pay damages to the main contractor if it failed to do so. The main contractor’s primary remedy for lack of regularity and diligence was the right to terminate the subcontract.

Comment

This case is consistent with earlier decisions of the English courts to the effect that there is no generally implied obligation on a contractor, subcontractor or even sub-subcontractor to proceed “regularly and diligently” with its works. It is for this reason that contracts, such as the JCT forms, state expressly that the contractor is under such an obligation, and it will be liable if it does not proceed in a “regular and diligent” manner. A complementary or even separate measure is for a contract to require the contractor to work to a particular programme, so that if the contractor is running late in certain activities on its programme it may be obligated to pay damages to the employer for any loss occasioned by it being late, or it may be instructed to accelerate.

Interestingly, despite the NEC3 form requiring the contractor to submit a programme for acceptance, NEC3 does not in terms require the contractor to perform its works in accordance with its accepted programme. Nor does NEC3 impose any general obligation on the contractor to work in a “regular and diligent” manner, or equivalent. This may necessitate amendments to the NEC3 form, when used.

The message that yesterday’s TCC case delivers is clear. Unless a contract expressly requires a contractor to perform its works in a “regular and diligent” manner (or similar), or it requires the contractor to work to a particular programme, the contractor may perform its works in almost as spasmodic a manner as it chooses – provided it completes those works by the particular date for completion.

Reference: Leander Construction Ltd v Mulalley & Co Ltd [2011] EWHC 3449 (TCC)