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Costain v Tarmac – dispute resolution procedures in multiple NEC3 contracts

Costain v Tarmac – the issue of different dispute resolution procedures in two contracts was the focus of a recent TCC case.

The problem of defective concrete in newly-installed central reservation barriers on the M1 in Nottinghamshire was well-documented at the time in 2015.

Main contractor Costain was party to an NEC Framework Agreement with the Secretary of State for Transport for the provision of transport infrastructure projects. Separately, Tarmac was party to another NEC Framework Agreement with the Secretary of State for the provision of construction materials. Costain was obliged to seek proposals from Tarmac for the provision of ready mix concrete, which it did.

Costain subsequently placed a subcontract with Tarmac for the provision of concrete to slipform the new barriers. That subcontract used the NEC Supply Short Contract (SSC).

The Parties’ relationship was therefore governed by all three contracts.

The Parties’ dispute concerned the difference between the cost of the remedial works which Tarmac accepted, and the cost of the (more extensive) remedial works proposed by Costain. That was referred to adjudication. The adjudicator was Christopher Hough, nominated by the ICE. He decided that Costain was out of time to pursue the claim. Costain was seeking to recover £6 million by way of damages for breach of contract.

Differences in the dispute resolution provisions of the Framework Agreement and the Subcontract were highlighted by Costain as part of its arguments to avoid the adjudicator’s decision. This case in the TCC concerned the ability of Tarmac to refer the dispute to arbitration. Costain’s case concerned a number of issues which are discussed in the judgment here.

Tarmac said that although there was only one overall sub-contract, the existence of two separate sets of contract conditions was relevant. Tarmac said that a dispute between the parties under the Framework Contract (which would relate to the seeking of the quotation and the provision of the quotation) would be governed by the Framework Agreement’s provisions, whereas any dispute as to the supply of the concrete itself would be governed by the specific adjudication/arbitration clause 93 of the Supply Contract.

The Judge “reached the firm conclusion that [Tarmac’s] interpretation of the contract [was] the correct one.”

He further commented, “Thus, the fact that there were two separate sets of NEC3 conditions was a deliberate decision which reflected the two elements of the relationship between the parties. In those circumstances, the fact that the parties had agreed that those two separate aspects of their relationship required two different dispute resolution provisions is unexceptionable. The conclusion that, in this case, there were two separate dispute resolution procedures which did not overlap but complemented each other, because they related to two separate elements of the relationship between the parties…”

Conclusion

The use of the NEC Framework Contract is widespread with many major industry clients who prefer frameworks to repeated procurement of individual contracts. This case has highlighted the need for the parties to such agreements to ensure that the terms are well-drafted, particularly where Z clauses or their equivalents under other standard forms of contract are concerned.

Costain Limited v Tarmac Holdings [2017] EWHC 319 (TCC)

 

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Posted in case studies, Construction

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15th September 2019

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