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"This article first appeared in Construction News, 3 November 2011."
The National Federation of Builders’ (NFB) 2008 survey reported that over 87% of sites experience problems with utility companies. It is no surprise then that many construction contracts try to specifically allocate the risk in their performance. But is that risk allocation always as you expected?
Take the standard JCT contract for example. Delay caused by a “Statutory Undertaker” is a ‘Relevant Event’ so that if a utility company delays the works, a Contractor gets an extension of time. The same provision is often deleted by Employers wishing to transfer the risk back to the Contractor.
However, like many other contracts, the definition of “Statutory Undertaker” refers only to someone “executing works solely in pursuance of its statutory obligations…” In today’s privatised utilities market, such a definition won’t necessarily cover what happens in practice.
There are many, sometimes unexpected factors influencing whether a utility company is acting under a statutory obligation. To give a couple of examples:
- Post-privatisation, most utility works are performed under contract; usually “statutory offer” terms required by the legislation governing the relevant utility. Yet a 1980 case (Boot v Lancashire) suggests that a utility provider operating under contract may not be acting “solely” under statutory obligations and so could possibly fall outside the JCT definition. A more recent case (Jerram Falkus v Fenice [No.4]) correctly identified the need for this discrepancy between theory and practice to be revisited but, for now at least, the uncertainty remains.
- Utilities works are no longer the preserve of the regional operator. So called ‘contestable’ works may be carried out by licensed independent providers leaving just limited ‘non-contestable’ works as the exclusive territory of the “statutory” body. However, whilst independent providers are entitled to perform regulated works, they do not necessarily have a statutory obligation to do so.
The forthcoming results of the NFB’s 2011 survey will tell us whether the user experience of utilities providers has improved. But as these examples show, you nevertheless need to make sure the wording of your contracts covers the realities of how those works are being carried out.
Get it wrong and you could find yourself at the mercy of the facts of the particular case to determine where risk lay. Being a hostage to fortune in this way is not desirable if looking for certainty or to effectively manage risk, so proper allocation of the risk up-front is key.
Alan Woolston is a Partner and Head of Construction & Projects at Field Fisher Waterhouse LLP