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Company lost lucrative contract through lack of foresight

Posted: 30th July 2015   In: Corporate Commercial

A company had a multi-million pound contract terminated because it failed to foresee the extent of ground contamination on a development site and failed to carry out its own checks.

The case involved a construction company that entered into a contract with the government of Gibraltar to construct a road and tunnel. The contract incorporated the FIDIC Conditions of Contract for Plant and Design-Build.

The site had previously been used for military activity, and so an environmental statement estimated that there would be a certain amount of ground contamination.

In December 2010, when the contract should have been completed, the contractor stopped work on the tunnel, proposing to re-design it because the level of soil contamination exceeded the estimate in the environmental statement and could not have been foreseen.

In July 2011, the government served notices terminating the contract because of the contractor's lack of progress. The contractor claimed that the government had repudiated the contract.

The judge disagreed. He held that the level of contamination was no greater than should have been foreseen by an experienced contractor, that no variation instructions had been given and that the government had validly terminated the contract under the terms of the agreements.

The Court of Appeal has upheld that decision. It held that the judge was plainly right in accepting the evidence of a contamination expert that an experienced contractor would not have simply accepted the estimate in the environmental statement but would have made its own assessment based on all the available material.

The FIDIC conditions required a contractor to make its own assessment of the conditions it might encounter, drawing on its own experience and expertise.

Please contact Simon Porter if you would like more information about the issues raised in this article or any aspect of contract law.