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FIDIC 1999 Red Book contains a similar provision to NEC3, adding that objects found are to be placed under the employer’s care, and that the contractor is to take reasonable precautions to prevent personnel removing any items. If delay is incurred as a result of the discoveries then notice of delay is to be given to the Engineer (clause 4.24).

11.4TRANSFER OF MATERIALS

The question as to which party owns materials or plant can be important in the event of the insolvency of the contractor or when a contract is terminated. A supplier may claim ownership of goods delivered but for which payment has not yet been received. The contractor may attempt to remove materials from site immediately before insolvency. The employer on the other hand will claim ownership based on payments made. The common law rules that govern the transfer of ownership in materials from contractor to employer are fairly straightforward. They will operate as implied terms in any contract where they are not overridden by express provisions. Such express provisions, known as retention of title clauses, are sometimes found in sub-contracts or suppliers’ standard terms.

11.4.1General position

At common law, as soon as any materials or goods are incorporated into a building, they cease to belong to the contractor and become the property of the employer.9 However, until the materials are built into the works, even though they have been delivered to site, they remain the property of the contractor. Even the fact that the employer has paid the contractor for the materials will not make a difference, unless (as is usually the case) the contract makes express provision for this.

The question of whether ownership lies with the employer or the contractor becomes most important where one of the parties becomes insolvent. As a general principle, all the creditors of an insolvent person or company are entitled to share equally in the remaining assets, and these will include all property owned by the insolvent person at the time. Thus, if the contractor becomes insolvent, materials on site that have not yet passed to the employer may be seized by the contractor’s receivers. What is more, unless the contract provides otherwise, this will hold good even where the value of those materials has been included in interim certificates.10

Somewhat strangely, the courts have not always applied the same principle to cases where it is the employer who becomes insolvent. It has for instance been held that, although the ownership of building materials may have passed to the employer under a ‘vesting clause’, the contractor’s continuing rights to use those materials in constructing the building are strong enough to override the claims of the employer’s creditors.11

9 Sims v London Necropolis Co [1885] 1 TLR 584.

10Hanson (W) (Harrow) Ltd v Rapid Civil Engineering Ltd and Usborne Developments Ltd (1987) 38 BLR 106.

11Beeston v Marriott (1864) 8 LT 690.

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11.4.2Contract provisions

JCT SBC 11 does not alter the principle that the ownership of materials is transferred when they are incorporated into the building, but clauses 2.24 and 2.25 provide a method by which the ownership may pass to the employer at an earlier stage. The value of unfixed materials and goods intended for the works, whether they are onor off-site, may be included in an interim certificate. If this is done, then the ownership of those materials and goods will pass to the employer as soon as the amount is duly paid.

Some contracts, notably those used on civil engineering projects, depart further from the common law position. ICE 5 and 6, for example, contained a clause stating that, not only goods and materials, but also the contractor’s equipment and temporary works, should be ‘deemed to be the property of the employer’. However, despite the sweeping words used, it has been held that this does not literally transfer legal ownership of the contractor’s plant to the employer, but merely creates a charge over the plant (so that, if the contractor becomes insolvent, the employer can use the plant in order to complete the works).12 In any event, clause 54 of ICC 11 has dropped the ‘deemed’ transfer of ownership, providing instead that such materials and equipment may not be removed from the site without the written consent of the engineer (which is not to be unreasonably withheld).

NEC3 clauses 70 and 71 note that title to plant and materials passes to the employer once they are within the working areas, but revert to the contractor if removed with the project manager’s permission. An exception is that title to plant and materials outside the working areas can pass to the employer if identified for payment as materials off site and these items are suitably marked.

FIDIC 1999 Red Book usefully clarifies ownership at clause 7.7 by noting that each item of plant and materials becomes the property of the employer at either the date delivered to site or when the contractor is entitled to payment of those, whichever date is the earlier. This provision is expressly subject to the laws of the country as confirmed in the contract.

11.4.3Retention of title

The contract may deal satisfactorily with questions of ownership as between the employer and the contractor; however, problems may arise in cases where the contractor brings on to the site materials that are still in the ownership of a supplier. In particular, many suppliers operate under standard conditions of sale, which provide that they shall retain the ownership of goods until full payment is made. There is an obvious possibility of conflict between the terms of the main contract and those of the contract of supply.13 The problems that can then arise are dealt with in Chapter 19.

12Cosslett (Contractors) Ltd v Mid-Glamorgan CC (1997) 85 BLR 1.

13See Dawber Williamson Roofing Ltd v Humberside CC (1979) 14 BLR 70; Archivent Sales and Developments Ltd v Strathclyde Regional Council (1984) 27 BLR 98.

12 Employer’s obligations

The most important of the employer’s obligations under a construction contract are monetary: to pay the contractor what is due for work done, and in certain circumstances to compensate the contractor for loss and expense. These obligations will be discussed in detail in Chapters 15 and 16.

This Chapter considers a number of other obligations imposed on the employer. We look first at those obligations implied by law wherever they are not overridden by some express term of the contract. Second, a brief account is given of the obligations expressly imposed upon the employer under JCT SBC 11, NEC3 and FIDIC 1999 Red Book. These obligations are few in number, but very important to the effective discharge of the contract.

The reason why the employer appears to have relatively few express contractual obligations, and to play a merely passive role, is that the contract allocates numerous duties to the contract administrator. In truth, many of these duties are the employer’s responsibility in the sense that, if the contract administrator fails to perform, the contractor may claim against the employer for breach of contract. The extent of the employer’s responsibility is also considered in this Chapter, although the actual content of the contract administrator’s duties is dealt with in more detail in Chapter 18. The fact that so many of the employer’s obligations are carried out by the contract administrator leads to an important practical point; an employer who tries to circumvent this relationship, and to communicate directly with the contractor, runs a serious risk of causing confusion and resulting problems. A wise contractor will decline to accept direct instructions from the employer, requesting instead that they be channelled through the contract administrator. In any event, the contractor should always ask the contract administrator for written confirmation of the employer’s direct instructions.

12.1IMPLIED OBLIGATIONS

It is obvious to everyone that the contractor has a duty to carry out and complete the contract works. What is sometimes overlooked is that the contractor also has a right to do this. Unless the contract provides otherwise, the contractor is entitled to carry out the whole of the contract works within the contract period, and the employer must co-operate to enable this to be achieved.

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12.1.1Non-hindrance and co-operation

It was acknowledged in Merton LBC v Stanley Hugh Leach Ltd1 that two general obligations on the part of the employer are to be implied into all building contracts. They are expressed as follows:

1.The employer will not hinder or prevent the contractor from carrying out all its obligations in accordance with the terms of the contract, and from executing the works in a regular and orderly manner.

2.The employer will take all steps reasonably necessary to enable the contractor to discharge all its obligations and to execute the works in a regular and orderly manner.

Although they are expressed as two separate obligations, these are in reality the positive and negative aspects of the same thing. Together they make it the employer’s duty to co-operate with the contractor in all aspects of the contract work. In considering what this means in practice, we shall accordingly not attempt to divide our examples into those involving ‘non-hindrance’ and those requiring ‘co-operation’.

12.1.2Specific examples of non-hindrance and co-operation

One aspect of the contractor’s right to do the work tendered for is that the employer cannot order the omission of work from the contract, with the intention of giving this work to another contractor.2 This principle is so fundamental that such conduct could well constitute a repudiatory breach by the employer (see Chapter 22), which would entitle the contractor to terminate the contract.3 It is thought that the employer is likewise unable to take away work for which the main contractor has priced and instead nominate a sub-contractor to carry it out.

The contractor’s right to carry out the work means that, as a general rule, the employer cannot unilaterally decide to abandon the project altogether. This is sometimes referred to as termination for convenience. This is certainly the position under JCT SBC 11, where the employer’s right to terminate the contractor’s employment (considered in Chapter 22) arises only in certain very limited circumstances. However, some other standard form contracts (such as FIDIC 1999 Red Book) contain an express clause allowing the employer to terminate the project at any time without reason. Naturally, under such a contract, an employer who abandons the project will not be liable for damages to the contractor. It is important for a contractor to ensure that, where the main contract contains a unilateral termination clause, every sub-contract contains a similar provision. If this is not done, the contractor will be liable to sub-contractors when the project is abandoned and will not be able to pass responsibility for this on to the employer.4

1 (1985) 32 BLR 51.

2 Commissioner for Main Roads v Reed & Stuart Pty Ltd (1974) 12 BLR 55. 3 Carr v JA Berriman Pty Ltd (1953) 89 CLR 327.

4 Smith and Montgomery v Johnson Brothers Co Ltd [1954] 1 DLR 392.

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The principles which govern abandonment also apply to the temporary suspension of the work, although it is far more common to find an express term of the contract giving the employer powers in this respect. The question of suspension is considered in more detail in Chapter 18.

As will be seen in Chapter 14, the employer’s duty of co-operation includes giving the contractor possession of the site at whatever time the contract states. If the contract is silent on this matter, then the employer’s implied obligation requires the contractor to be given possession at such a time as will enable the work to be finished by the specified completion date.5

Whether or not the employer’s obligation extends to the obtaining of any official permits for the proposed work, such as planning permission, depends essentially on the terms of the contract. Under JCT SBC 11, for example, the overall effect of clause 2.17.3 is that the employer is responsible for ensuring that the works as designed comply with all statutory requirements; it is thereafter the contractor’s responsibility to serve whatever notices and obtain whatever permissions are necessary (clause 2.21). By contrast, many design and build contracts, such as JCT DB 11, place the entire responsibility on the contractor, except in so far as the Employer’s Requirements are specifically guaranteed to comply with the statutory requirements.

An important part of the employer’s duty of co-operation concerns the appointment of a contract administrator and, where appropriate, the nomination of sub-contractors. These matters are usually covered by express terms of the contract but, if not, the implied obligation certainly extends to them. Indeed, where the contract envisages the use of an architect or an engineer to supervise the works and act as the employer’s agent, it is a condition precedent to the performance of the contractor’s obligations that the appointment is made.6 This means that a contractor can refuse to carry out any work until the employer makes such an appointment. If, however, the contractor proceeds without the appointment of a contract administrator, this would constitute a waiver of the right to insist on an appointment.7

Similarly, where the contract makes provision for sub-contractors or suppliers to be nominated, the employer must make these nominations within a reasonable time. Should it become necessary to renominate (or to reappoint a contract administrator), this too must be done within a reasonable time.

As far as the general running of the project is concerned, the employer may be put in breach of the duty of co-operation by what is done by a number of other parties. For example, the employer will be liable to the contractor for breach of contract if the contract administrator delays unreasonably in giving necessary instructions; if materials which the employer has undertaken to supply are delivered late; or if the contractor’s work is impeded by other contractors working directly for the employer.

Before leaving the subject of the employer’s implied obligations, it is important to note that these do not require co-operation to an extent that would enable the contractor to do more than the contract specifies. Thus, while it is the contractor’s

5 Freeman v Hensler (1900) 64 JP 260.

6 Coombe v Green (1843) 11 M&W 480.

7 Hunt v Bishop (1853) 8 Exch 675.

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right to complete on or before the contractual completion date, the employer’s duty of co-operation extends only to ensuring that the completion date is achieved. A contractor who seeks to finish early cannot force the employer to assist.8 Similarly, where sub-contractors undertake to carry out work ‘at such time or times as the contractor shall direct or require’, there is no implied term requiring the main contractor to make sufficient work available to the sub-contractors to enable them to work in an efficient and economic manner.9

12.2EMPLOYER’S EXPRESS OBLIGATIONS

In addition to the implied obligations described above, the express terms of any construction contract will undoubtedly impose duties on the employer. Some of these (such as the duty to give possession of the site) will go no further than the term that would in any event be implied. Others, such as duties to insure, break completely fresh ground. Naturally, the range and content of the employer’s express obligations will vary from one form of contract to another, and it would not be practicable here to deal with all the possibilities. We shall therefore look at those obligations contained in JCT SBC 11, NEC3 and FIDIC 1999 Red Book in order to give some idea of what is commonly found.

12.2.1Payment

Undoubtedly the most important of all the employer’s express obligations is to pay the contractor the sum of money which forms the consideration for the contract, known as the contract sum. The extent of this obligation, and the way in which the contract sum is assessed and can be altered, are dealt with in Chapter 15.

12.2.2Necessary nominations

The tender and agreement names the architect, engineer or contract administrator who is to be responsible for performing all the functions which the contract conditions allocate to such a person. If the person named ceases to hold this post, it is the employer’s duty to nominate a replacement. Under JCT 11 clause 3.5 this renomination must take place within a reasonable time, which must in any event not exceed 21 days. It is also made clear that, as a general rule, the contractor has a right of objection on reasonable grounds to the renomination. However, there is no right of objection where the employer is a local authority and the architect, contract administrator or quantity surveyor is an employee of that authority. Under the FIDIC 1999 Red Book, 42 days notice of replacement of the Engineer under clause 3.4 must be given to the contractor, and the contractor may raise reasonable objections.

8 Glenlion Construction Ltd v Guinness Trust (1987) 39 BLR 89.

9 Martin Grant & Co Ltd v Sir Lindsay Parkinson & Co Ltd (1984) 29 BLR 31.

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12.2.3Site obligations

As we will see in Chapter 14, the need to give the contractor possession of the site at the right time is fundamental to the contract. Failure to do so will cause the employer to forfeit any claim for liquidated damages on late completion.10 It will also render the employer liable to pay damages to the contractor.11 JCT SBC 11 clause 2.4 alludes to this important obligation with the text, on the Date of Possession possession of the site, or in the case of a Section, possession of the relevant part of the site, shall be given to the Contractor. Although the employer is not specifically mentioned, a failure to secure possession for the contractor will constitute a breach by the employer, but liability for prevention by an independent third party depends on the specific wording of the contract.12

Unless otherwise agreed, the employer’s obligation is to give possession of the whole of the site from the outset, and not just those parts where work is to begin immediately. It is further accepted that the contractor must be given, not only the actual area to be built on, but also sufficient surrounding space to enable the work to be properly undertaken.13 This would include, for example, room to erect temporary buildings and compounds, to store equipment and so on. However, the employer will only be obliged to provide access to the site across adjoining land where this is specifically stated in the bills.

12.2.4Insurance of the works

As we shall see in Chapter 17, the standard forms offer a choice of insurance arrangements, depending among other things on whether the work consists entirely of new buildings or whether existing buildings are involved. All that need be said here is that it is the employer’s duty to procure the necessary insurance in some circumstances, such as when work is being carried out to existing buildings.

12.2.5Confidentiality

An obligation imposed upon the employer by JCT SBC 11 is found in clause 2.8.4. This forbids the employer to divulge or use any of the rates or prices in the contract bills, except for the purposes of the contract.

12.2.6Permits, licences or approvals

An obligation imposed upon the employer under FIDIC 1999 Red Book clause 2.2 is to provide assistance to the contractor in obtaining copies of laws of the country in which work is to be carried out, and to assist with obtaining permits, licences,

10Holme v Guppy (1838) 3 M&W 387.

11Rapid Building Group Ltd v Ealing Family Housing Association Ltd (1984) 29 BLR 5, CA.

12Rapid Building Group Ltd v Ealing Family Housing Association Ltd (1984) 29 BLR 5, CA.

13R v Walter Cabott Construction Ltd (1975) 21 BLR 42.