Where work is omitted from the contract and handed to another contractor to carry out, is the employer liable to the original contractor for the profit lost on it?
Omitting work and giving it to a different contractor is not an ordinary omission. The standard forms do not permit it, and the courts treat it as a breach carrying loss of profit for the contractor whose work is taken away.
As a rule yes: the standard forms do not permit work to be omitted and given to another contractor, and there is an implied term against doing so, so an employer that omits work and has it carried out by others commits a breach and is liable for the original contractor loss of profit on the omitted work
As a rule, yes. The standard forms in current use do not permit work to be omitted and given to another contractor, and a term is implied against doing so, resting on the contractor's right to complete the work it contracted to carry out. An employer that omits work and has it done by others therefore commits a breach and is liable for the original contractor's loss of profit on the omitted work. In Amec Building Ltd v Cadmus Investment Co Ltd an arbitrary withdrawal of provisional-sum food-court work, let to another contractor, entitled Amec to its lost profit. Abbey Developments Ltd v PP Brickwork Ltd went to the same point, the judge holding that taking work away to have it done by others infringed the contractor's right to complete, and that clear words are needed before an omissions clause allows a transfer between contractors. The Australian decision in Carr v JA Berriman Pty Ltd is to the same effect: the omissions power lets the architect direct that items not be built, but not that they be built by someone other than the contracted builder. Its remedy is loss of profit on the value of the work taken away, and it applies to provisional sums given to others too.
| General rule | The standard forms do not permit omitting work to give it to another |
| Implied term | Against omitting work and having it carried out by others |
| Right to complete | Taking work away to give to another infringes the right to complete |
| Amec, Abbey | Arbitrary withdrawal to a third party is a breach; clear words needed |
| Remedy | Loss of profit on the value of the work taken away, provisional sums included |
The problem
It is one thing to omit work from a contract and not build it. It is another to omit work and give it to a different contractor to carry out. The parties can agree a contract that lets the employer do exactly that, and such a clause should say whether the original contractor may claim its lost profit. Standard forms in current use contain no such clause. So where work in a contractor's scope is omitted and handed to someone else, what remedy does the original contractor have?
Omission to another as a breach
The courts have treated an omission of this kind as a breach. A contract to carry out work gives the contractor not only the duty to do the work but the corresponding right to complete the work it contracted to carry out. Taking that work away and giving it to another is an infringement of that right, and clear words are needed before an omissions clause will be read as permitting it.
Arbitrary withdrawal: Amec
Fitting-out work to a food court was covered by provisional sums in Amec's contract. An architect's instruction omitted the work, which was then let to another contractor. The arbitrator found that the withdrawal was arbitrary, made to remove the work from Amec and give it to a third party, and awarded Amec its loss of profit of over 12,800 pounds plus statutory interest. On appeal the court upheld the award: although the architect had a discretion to withdraw work from provisional sums, an arbitrary withdrawal to give the work to another was something for which Amec was entitled to be compensated, and the loss of profit awarded could not be impugned as a matter of law.
The right to complete
The right to complete the work was put at the centre of a later decision.
A main contractor, dissatisfied with its brickwork subcontractor on a 69-house development, sent a letter of complaint and terminated the subcontract the next day, arranging for another firm to complete the work. The termination was invalid, because it did not give the seven days' notice the contract required. A contract to execute work, the judge held, confers on the contractor the right to complete the work it contracted to do, and taking that work away to have it done by others infringed that right. Clear words are needed before a clause will let the employer transfer work from one contractor to another, and the subcontract's variation-of-quantity provisions were not clear enough to permit what Abbey did. Abbey had a clause allowing it to suspend and re-tender without breaking the contract, but chose termination instead, which proved a costly error.
The Australian court held that while the omissions power let the architect direct that particular items in the plans and specification should not be carried out, it did not authorise the architect to direct that those items be carried out by some other contractor rather than the builder with whom the contract was made.
The result
The result of these decisions is that a term is implied into construction contracts against omitting work and having it carried out by others. Where work is omitted and arranged to be done by another, that is a breach, and the injured contractor's remedy is its loss of profit on the value of the work taken away. The same applies to provisional-sum work omitted and given to others.
Practical steps
Distinguish a genuine omission from an omission dressed up to move work to another contractor. The second is a breach.
As an employer, only transfer work to another contractor where the contract says so in reasonably clear words; the standard forms do not.
Use a suspend-and-re-tender power if the contract gives you one, rather than terminating and re-letting, which can be a breach.
As a contractor whose work is taken away and given to another, claim your loss of profit on the value of the work omitted.
Remember that provisional-sum work is caught too; an arbitrary withdrawal to a third party is compensable.
Authorities
| Authority | Citation | What it decides |
|---|---|---|
| Amec Building Ltd v Cadmus Investment Co Ltd | [1996] 51 ConLR 105 | An arbitrary withdrawal of provisional-sum work in order to give it to another contractor entitled the original contractor to its loss of profit |
| Abbey Developments Ltd v PP Brickwork Ltd | (2003) | A contractor has a right to complete the work it contracted to do; taking work away to have it done by others infringes that right, and clear words are needed before an omissions clause permits a transfer between contractors |
| Carr v JA Berriman Pty Ltd | (1953) 89 CLR 327 | The omissions power lets the architect direct that items not be carried out, but not that they be carried out by a contractor other than the one with whom the contract was made |