contract

Education is not the focus of this blog. Prior reference to the Department of Education is made as an aside.

Construction and the construction industry is, however, a focus. It is instructive to get a judgment on anything, instead of the usual bureaucratic fog of words. So check out this article from “Construction Manager”

“Ireland: Setting benchmark costs
From a UK perspective, school building costs in Ireland are almost shockingly low. In February 2006, the Department of Education set a maximum build cost for primary and secondary schools of €1,230/m2 (£1,095), including VAT at 13.5%, but excluding site preparation and groundworks, professional fees and contractors prelims.
In November 2009, the DoE dropped the building cost limit to just €990m2 (£880). In fact, recent tenders have been coming in below that: according to Galway-based contractor JSL, the going rate for the building element is €600-€750/m2.
But the specifications expected in the two countries really aren’t comparable. Classroom sizes are smaller in Irish schools, there is no catering provision or dining halls, while floor, wall, ceiling and door finishes are all basic. Steve McGee FCIOB, JSL’s director of construction, says that it’s like visiting a “two-star hotel” compared to four stars in the UK.
Secondary schools are all individually designed, but primaries are based on the DoE’s “generic repeat design”: four variations each on 8, 12 and 16-classroom schools.
The DoE has also built “rapid delivery” primary and secondary schools using prefabricated timber SIPs or concrete panels in just 20 weeks. And it recently tendered two Passivhaus primaries, although McGee says the DoE was disappointed with the cost: JSL’s unsuccessful bid was €1,600/m2.
Ireland’s strict cost limits no doubt galvanised the market and put pressure on suppliers and product manufacturers. Unified procurement also meant no variation in procedures around the country, so learning from one project could be taken to the next. But the market struggled with the Passivhaus project.”

Bill Prasifka, the new Financial Services Ombudsman has started well, if we can properly understand recent newspaper reports. He seems to have issued some form of Press Release but it’s not on his website yet.

The reports credit him with underlining that he is limited in the amount of compensation he may award against the anonymous “regulated” financial services bodies (banks) he polices. (He does’nt really; he reacts to complaints).

Consequently, Bill awarded the maximum, €250,000, to a farming couple who lost much more than that.

The limit is set in regulation, as follows:

“The amount of 250,000 euro is prescribed by Council as the maximum amount of compensation payable in respect of all other complaints for the purposes of Section 57CI(5) and Section 57CI(4)(d) of the Central Bank Act 1942 (as amended by Section 16 of the Central Bank and Financial Services Authority Act of Ireland Act 2004).”

This is comedy. Bill is himself policed by a Council; they write the regulations. The Minister for Finance appoints them.

Who are they? I do not know, but we learned recently from the Irish Times HERE that stuff like this was actually being written by the banks.

See our earlier post on the Financial Services Ombudsman HERE at paragraphs 12 to 15

Insurance has a strange aspect which we often overlook; we are happy that we did not need it.

We do not think that the premia paid year after year to insure our house is wasted money. After all, we do not want our house to burn down; we just want to rebuild and restore it if it does. So, we pay a small sum of money to meet the possibility of having to pay the much larger sum if the house does burn down (or suffer some other form of damage).

Sometimes the question of what is a proportionate sum to pay as a premium to cover the perceived risk has to be publicly determined.

In the UK, unlike Ireland, there is anxiety that justice should be facilitated. By “justice” is meant the ready and easy opportunity to go to court seeking a remedy without being prevented by extraneous causes, like poverty. Poverty is relative; most people in Ireland would consider the costs of a High Court action (or even a Circuit court action) beyond them.

Consequently, the UK authorities have facilitated schemes intended to achieve this end.

One such scheme is to allow lawyers who work on a “no win, no fee” basis to charge a significantly higher fee when they are successful, and provide that the losing party has to pay that higher fee as a matter of course.

Another is to recompense a plaintiff his or her insurance premium for “After The Event” (ATE) insurance. This is insurance taken out to, effectively, help pay for some of the litigation costs of the plaintiff/insured.

Section 29 of the UK Access to Justice Act 1999 provides:

“Where in any proceedings a costs order is made in favour of any party who has taken out an insurance policy against the risk of incurring a liability in those proceedings, the costs payable to him may, subject in the case of court proceedings to rules of court, include costs in respect of the premium of the policy.”

Inevitably, the losing defendants (other insurance companies) took issue with the premia being charged for the ATE.

HERE ‘s the outcome of that dispute.

Council Regulation 41/2001, “the Brussels Regulation” decides the proper jurisdiction for the determination of disputes in the EU.

Its authors must have been chess fans, dreaming of the great games of the early twentieth century when Capablanca and Lasker dominated the game. That is, it is hoped the authors had dreams.

In a chess dream one does not want to know that Capablanca and his wife Gloria did not get on well and had affairs, even if one does want to know that he became a Cuban civil servant “…with no particular duties but to be famous and go about putting Cuba on the map”. (We have aspirants in Ireland for jobs like that, hence my inappropriate interest).

Likewise, we provide no market for books entitled “The Philosophy of the Unattainable” [Lasker].

No, indeed, chess players should be seen and not heard. They should play the game and recede into the darkness (better still, the languorous white light of the Cuban midday), when the game is finished.

That half-remembered, half-forgotten realm of austere thought seems to be the birthplace of the Regulation. The Regulation has the appearance of simplicity but it is deceptive. It has the capacity to throw up great surprises from apparently straightforward circumstances.

Who would have thought that it would favour the Irish legal profession?

What else can we conclude when we see the Regulation in action in Knight v Axa Assurances [2009] EWHC 1900 QB?

The Plaintiff was injured in a road traffic accident in France. The Defendant was the insurer of the French motorist who had injured him. Under French law the Plaintiff had a direct claim against the Defendant as insurer. That claim was for the payment of compensation, and therefore was a debt. The place of payment of debts is, generally, where the Creditor is domiciled. Furthermore, the Plaintiff was a beneficiary, under French law, of an insurance arrangement and Article 9 (1) (b) of the Brussels regulation applied.

In Ireland, we have not introduced provision for injured persons to claim against the insurers of the malfeasor who caused the loss. This provision is available in the UK and, it would appear from Knight v Axa, France.

Therefore, in Ireland, third parties (other than named beneficiaries) are not “beneficiaries” under policies and cannot invoke Article 9 (1) (b) of the Brussels regulation to issue proceedings in their home state. They have to sue here, being the place where the wrongful event happened and the defendant resides.

A plaintiff in Ireland claiming general damages for a deficient holiday is more likely to be successful than a similar plaintiff in the UK. However, the plaintiff in ARTIS v MFI Ltd. [2006] CC (Huddersfield) would not have been anymore successful if he/she had sued in Ireland.

The plaintiff had purchased a flat-pack wardrobe. The wardrobe and its measurements were advertised on the defendant’s website. On purchase and assembly it was discovered the unit did not fit in with the purchaser’s current units. The defendant refunded the cost of the wardrobe but refused to compensate the plaintiff for the time and effort expended on the disappointing wardrobe.

The court agreed and declined to order compensation for the plaintiff under that head. The plaintiff did receive a sum as compensation for loss of earnings referable to the time spent assembling the wardrobe.

(Apologies to students of John Steinbeck for the title to the post)

Public procurement contracts are very important. See HERE. They are usually complex and involve the expenditure of substantial sums of public money. They are regulated by EU law, the object of which was stated by Advocate General Jacobs as:

[the]…main purpose of regulating the award of public contracts in general is to ensure that public funds are spent honestly and efficiently, on the basis of a serious assessment and without any kind of favouritism or quid pro quo whether financial or political.�?

This quote is from SIAC Construction Ltd. v Mayo County Council [2002] 3 IR 148. SIAC was one of many persons who tendered for the provision of a new sewerage system for the town of Ballinrobe. Its tender, on price, was the lowest. Mayo county Council awarded the contract to the next highest tenderer. In the judgment of the County Council’s engineer, SIAC’s tender would, in due course, be discovered not to be the cheapest.

SIAC took issue with the making of this judgment. The case was fought in the High Court. SIAC lost there. It appealed to the Supreme Court which remitted a question to the European Court of Justice (“ECJ�?). The ECJ found the County Council procedure to be unobjectionable, saying;

…when tenders are being assessed, the award criteria must be applied objectively and uniformly to all tenderers. Recourse by an adjudicating authority to the opinion of an expert for the evaluation of a factual matter that will be known precisely only in the future is in principle capable of guaranteeing compliance with that condition.�?

The Supreme Court (Fennelly J.) noted the difference between the basis for ordinary judicial review and public procurement review saying;

I do not think, however, that the test of manifest error is to be equated with the test adopted by the learned trial judge, namely that, in order to qualify for quashing, a decision must “plainly and unambiguously fly in the face of fundamental reason and common sense.�? It cannot be ignored that the Advocate General thought the test should be “rather less extreme.�? Such a formulation of the test would run the risk of not offering what the Remedies Directive clearly mandates, namely a judicial remedy which will be effective in the protection of the interests of disappointed tenderers. It is significant, I think, that Member States are required to make available, where appropriate and necessary, measures of interim relief ( i.e., potentially halting the public procurement procedure) and damages.�?

Mayo County Council had stipulated that the tenders would be assessed on the basis of what was the most economically advantageous contract. The contract was “a measure and value contract�?. This meant that the contractor was free to do the work and get paid for the work on the basis of work done. Effectively, any tender was an estimate of what the work would cost.

Consequently, Fennelly J. concluded;

It is the fact that the out-turn is uncertain that is decisive. I think that the County Council acted within its margin of discretion. I do not think it exercised that discretion in an unfettered way. It followed objective and objectively verified criteria.�?

I have written on the subject of standard contracts HERE and HERE.

The most valuable standard contract most often encountered in ordinary life is the one used by solicitors for the sale and purchase of a house. It is the work of the conveyancing committee of the Law Society.

It is the work of many people over many years. It embodies the experience gleaned from many thousands of transactions.

No solicitor will readily depart from the scheme it represents. It contemplates that the Vendor will hand over the title deeds and the key of the property in return for the purchase money. The desire of the purchaser to get possession and the desire of the Vendor to get the purchase money is what drives the transaction.

To hand over the key beforehand is to hand over possession. If a purchaser gets possession before parting with the purchase money there is a great temptation to evade or delay the handing over of the purchase money, at least until it suits the purchaser.

Thus, a prior representation that the Vendor will hand over the key before the closing of the transaction will not be complied with. It will be reneged on.

This is not a breach of agreement; the agreement is in the contract. If provision is not made in writing that possession will be furnished prior to the closing, there will be no obligation to do so.

Apropos cost overruns, it is interesting to note HERE that when Siemens hits a delay on a project in China and, elsewhere, defects on a project in Budapest it suffers a loss of €200 million, but when roads cost more in the UK the taxpayer takes the loss. Who, in the name of goodness, does the UK Roads Authority use to write its contracts?

Should we not ask our Irish ambassador in China to procure a copy of the Siemens contract and urgently check with the National Roads Authority for an assurance that their contract writer is not the same one as used by the UK Highways Agency?

I have written (HERE) of the need for speed in challenging the award of a public contract where the provisions of the Regulations governing such contracts have not been followed. (European Communities (Award of Public Authorities’ Contracts) Regulations 2006 (Statutory Instrument No. 329 of 2006) ).

The Regulations expressly embody a good idea; that the nation get the best value for money. It is not easy to ensure this.

For instance, one assumes the contract for the “regeneration�? of Ballymun was awarded on the criteria adopted in the 2006 Regulations (not pursuant to them; they post-date the Ballymun contract).

We now see (HERE) that the Ballymun contract is €500 million over budget.
Who can now say that the seemingly more expensive underbidder was not in fact the cheaper of the bids? (Assuming there was an underbidder).

The problem is endemic in such contracts (especially in IT contracts).

In truth, neither the contractors nor the public authorities seeking tenders genuinely know what the costs of such projects are; the tenders are guesses.

The man who built the Empire State building in New York was asked what the most important element was in the construction; he replied, “getting the contract�?.

Following that line of thought, the best guess is the one that seeks, not to estimate the actual cost of the project, but to guess the cost projection of the public authority for the project. That will secure the contract.

It is possible to try and ensure that the cost overruns do not fall to the account of the public, but that, too, seems to be hard to avoid as we see in the Metronet debacle HERE and HERE.

What Transport for London seemed to have overlooked was the freedom of the individual members of the Metronet consortium to become sub-contractors (they gave the contracts to themselves) When Metronet went into administration, Transport for London continued answerable for the claims of those sub-contractors.

It is an important element in the negotiation of such contracts to ensure, to the greatest extent possible, that there will be no re-negotiation of the contract later. The World Bank has this to say on the matter:

8.3.1Avoiding renegotiations
According to one study,55 percent ofwater concessions awarded in Latin America were renegotiated in the 1990s,many within two years ofthe award (Guasch 2004). In some cases, the operator or contracting authority may reasonably refuse to renegotiate.Moreover,developing a reputation for being hard-nosed could reduce the likelihood that the contracting authority will be exposed to opportunistic behavior in the future. In other cases,circumstances may have changed in ways that mean the current arrangements are no longer appropriate,and renegotiation can help both parties.
Often,both the contracting authority and the operator have strong incentives to renegotiate rather than terminate the arrangement:contracting authorities are often concerned that terminating the arrangement may result in an interruption to key services,while operators do not want to lose any past investment or future profit. Yet renegotiation changes a previously agreed arrangement.The contracting authority or the operator may try to renegotiate in order to reduce its risk exposure or to gain advantages it was unable to obtain in the initial agreement (Box 8.1).When the operator is selected based on the lowest tariff bid or highest concession payment,operators may engage in aggressive bidding strategies (lowballing) to win the contract and then seek to renegotiate for more favorable terms once competitive pressure is no longer an effective constraint.

Modern governments have phenomenal spending power. Like a householder, they need to engage tradesmen and professionals of various types to do work the State needs done.

You want a new motorway? Here is a company to build it. You want a new harbour? Here is a company to dig it. You want a contract drafted for the motorway construction to secure your interests and ensure you get value for money? Here is the solicitor to write it for you.

These contracts are very valuable. They allow the person to whom the contract is awarded to, at the very least, pay the wages of the staff of the successful tendering company, say, during slack industry trading periods.

They also represent opportunities for pork-barrel politics. The politician who formulates and guides the policy resulting in the decision to have a motorway in the first place and then the decision as to who will get the contract, wields enormous power. The exercise of that power can secure re-election by the votes of grateful beneficiaries or the money to win those votes in an election.

Clearly, they represent opportunities for criminal activity in the form of fraud and corruption.

That aside, the State, as a major economic engine, can “distort�? the free market in goods and services. The European Union is professedly wedded to ensuring such markets, as are of a minimum size, will be free.

Consequently, EU member states are obliged to adjust their national law to conform to Directive 2004/18/EC intended to ensure only economic considerations (broadly defined) are the determining factor in the awarding of those public contracts which reach the threshold limit.

(HERE is a reference to an Irish-related case dealing with the obligation to advertise (or not!), that the contract is available.)

Ireland passed European Communities (Award of Public Authorities’ Contracts) Regulations 2006 (Statutory Instrument No. 329 of 2006) to comply with its EU obligations in this regard.

The Regulations are legally binding on the awarding authority. In Chapter 3 there is set out the basis for the awarding of the contracts:

Criteria for the award of a public contract

66. (1) A contracting authority shall, in awarding a public contract on the basis of the tender that is most economically advantageous to it, adopt criteria linked to the subject matter of the contract.

(2) Except as provided by paragraph (1), a contracting authority shall award a public contract on the basis of the lowest price.

(3) For the purpose of paragraph (1), the criteria may include (but are not limited to)―
· quality,
· price,
· technical merit,
· aesthetic and functional characteristics,
· environmental characteristics,
· running costs,
· cost-effectiveness,
· after-sales service and technical assistance, and
· delivery date and delivery period or period of completion.

(4) The contracting authority shall specify in the relevant contract notice or contract documents or, in the case of a competitive dialogue, in the relevant descriptive document, the relative weighting that it gives to each of the criteria chosen to determine the most economically advantageous tender. That weighting can be expressed by providing for a range within an appropriate maximum spread.

If an unsuccessful party wishes to challenge the legality of the award of a public procurement contract it is necessary to do so as quickly as possible.
Failure to act swiftly will preclude the applicant from relief. (See HERE).