The builder of the Empire State building in New York, when asked what the most important thing was in its building replied, “Getting the contract”.

What he did not say, but just might have been able to say, is that the “contract” may be subsequent to the commencement of work.

The reason for this lies in a practice common in the construction business, of issuing “letters of intent”. The intended purpose of these is to start the process of negotiation of the terms of the contract (or even to just gain time while the contract is being drafted), but to avoid inhibitions in the commencement of work.

The contract negotiation may be lengthy. Frequently, construction contracts are accompanied by “collateral” contracts intended to benefit third parties, such as the bank that is financing the construction.

Interesting, and profitable (for lawyers) questions arise when the work is completed in the absence of the formal signing of the contract. The correspondence may be replete with the slogan “subject to contract/contract denied”, but it will be difficult to maintain the position that there is no contract in such circumstances.

Depending on the course of the negotiations the planned terms of the contract may be readily discovered; very likely the intended terms were in the form of one of the RIAI contracts or some other model construction/engineering form.

Even if there is no contract, an “employer” is not entitled to deny responsibility for payment for work done. Claims of this kind used to be called “quasi-contract” but are now called “restitutionary”.

However, that circumstance and another where there was no “model” form of contract alluded to, present yet more interesting and profitable (for lawyers) questions as to what the subject matter of the contract was and whether one of the parties (the builder, usually) has complied with its terms.

This can easily arise where what was done was, say, constructing an extension to a house. Ideally, some construction professional (a surveyor, say) will have been engaged to specify the work and oversee its execution. If this has not happened and the work is not satisfactory, the “employer” must, belatedly, discover what are the minimum standards applicable to construction work. If the “employer” is not in business then the “employer” may be a consumer under the Sale of Goods and Supply of Services Act 1980 and some at least of the terms of the contract will be implied under the 1980 Act.

There is no reason, in the case of a small job, for work to commence before the execution of a proper written contract with a specification attached and for arrangements for the work to be supervised by a construction professional.

I have written on the prospect of emerging Building (Construction) disputes in the credit crunch HERE.

When a Mr. McGlinn decided to have a new house in Jersey his subsequent difficulties had little to do with a credit crunch. He was a participant in the success of The Body Shop chain and had an estimated net worth of £100 million.

Abbreviations are as follows;

McGLINN: [Employer]
HTA: [Architect]
WALTHAM: [Contractor]

As the court found in its judgment, McGlinn proceeded with the building of his £2 million house while the issue of a settled written building contract was “up in the air�?. His new house was aptly named “Maison d’Or�?, surely a reference, intended or not, to Nero’s “Domus Aurea�?

The case is of interest because it examines issues relating to the division of responsibility for a building disaster. The judge remarked that the house was basically a generally sound and secure structure, yet the Plaintiff had demolished it. The contractor had gone into liquidation and the architect was the principal remaining target of the claim. The implications of that appear in the judge’s remark;

In other words, I have endeavoured not to lose touch with reality; the mere fact that the contractor would have been found liable for an item of defective workmanship does not automatically mean that there is a sustainable case against the architect for failing properly to inspect.�?

The judgment commences and records:

This action concerns a house called ‘Maison d’Or’ that was built for the Claimant, Mr Ian McGlinn, in St Aubin, in Jersey. The house took three years to build, between January 1999 and December 2001. Following the departure of the building contractors in January 2002, when the house was substantially complete, it sat empty for the next 3 years whilst the alleged deficiencies in its design and construction were the subject of extensive investigation by a team of experts and contractors. In the early part of 2005, it was completely demolished. It was never lived in. It has not been rebuilt.�?

AND again on the subject of the contractual relations between the Plaintiff and the contractors (an important issue where a building contract had not been signed);

Despite the terms of the letter, no formal building contract was ever entered into by Mr McGlinn and Waltham, and, even more surprisingly, the letter was never updated. In August of 1999, after Waltham had been working on the site for many months, WL sent them a set of contract documentation which, in the round, duplicated in their entirety the documents sent out with the original tender enquiry. However, this contract was never signed by Waltham and sent back. Whether this was simply due to inadvertence is unlikely; there is a clear suggestion in the papers that Waltham deliberately decided that they could not sign up to this contract because they were unable to agree to a completion date for the works due to the number of variations. It is likely that this was a classic case where a contractor was allowed to start work before a contract was or could be agreed, and by the time the parties might have been in a position to formalise a binding contract, it had been overtaken by events. Mr Thornton said that it was his understanding that “the contract was not signed because it was in flux”. However, notwithstanding the absence of a contract, Waltham often wrote to HTA making claims pursuant to specific clauses of the JCT standard form, and purporting to rely on specific provisions that they considered helpful.

What, then, can be said about the precise legal relationship between Mr McGlinn and Waltham? It seems to me that it would be idle to suggest that there was no contract, given the fact that Waltham carried out £4 million worth of work at Maison d’Or and the clear warning against finding no contract at all in such circumstances from Steyn LJ (as he then was) in G Percy Trentham v Archital Luxfer [1993] 1 Lloyds Rep 25 at 27. There he made the point (with which I respectfully agree) that:

“The fact that the transaction was performed on both sides will often make it unrealistic to argue that there was no intention to enter into legal relations. It will often be difficult to submit that the contract is void for vagueness or uncertainty. Specifically, the fact that the transaction is executed makes it easier to imply a term resolving any uncertainty, or, alternatively, it may make it possible to treat a matter not finalised as inessential.”

It should also be noted that, although Waltham played no part in the hearing, their pleaded defence maintains the stance they adopted during the works: it assumes the existence of a binding contract, and indeed purports to rely on a number of the terms of the JCT Standard Form where they are considered to be helpful to the contractor, without ever addressing matters such as the agreed work scope or the contract completion date.

For present purposes it seems to me that Waltham and Mr McGlinn, through his agents, were agreed that, to the extent that it was consistent with the specific agreements that had been reached, the JCT Standard Form of Building Contract, 1998 Edition, would be incorporated into their contract. In addition, it seems to me that there was an agreement between Mr McGlinn and Waltham that the preliminaries and general conditions set out in Bill 1 of the Bills of Approximate Quantities would also be incorporated into their contract. That was certainly the important assumption on which WL operated. However, the fact that these JCT conditions look to have been broadly agreed as between Mr McGlinn and Waltham should not be taken to mean that the obligations of any of the professionals on this project must have been those which are envisaged to exist by the JCT Standard Form.�?

The architects, said the judge (failure to furnish a specification and to inspect being the main issues against them):

were obliged to inspect the works being constructed to their design in accordance with these principles. In respect of the structural works, and the M&E works, HTA’s obligation to inspect was more limited. It extended to ensuring that any co-ordination issues had been properly dealt with by Waltham, and it might possibly extend to any very obvious errors in the construction of these elements, but it would not be appropriate to impose upon HTA the same inspection obligation in respect of a detailed element of the work designed by, say, the engineer, as for an element of the work which they themselves designed. It is clear that in the former case, their inspection obligation must have been much less onerous. In addition, as set out in paragraph 210 above, HTA were obliged to carry out periodic inspections in respect of the interior/finishes, notwithstanding TDD’s primary design obligations.�?

Judgment was given for the Plaintiff against the architects and the consulting engineers for their failures. Those damages were in the region of £500,000. The judgment did not deal with the liability of the insolvent contractor, who, the evidence showed, had entered into a loan agreement with the architects, following the awarding of the work to the contractor, for the loan of £10,000 to them, without the knowledge of the Employer/Plaintiff.