Prior Works are Covered… Or are They?
Overview
This article has been prompted by a recent Queensland adjudication determination where the adjudicator determined that even though the terms of the contract in question incorporated by reference prior works performed under an early contractor involvement (ECI) agreement, the contract did not incorporate the descriptive elements of those works. In the adjudication in question, the central point of dispute was with respect to the description of the works and therefore this finding was critical.
Leaving aside whether this determination was correct at law, this article focuses on the importance of including proper description of works in contracts and agreements and ensuring that those descriptions of works are properly incorporated in any subsequent contract or agreement.
This article does not deal with multiple other issues which could possibly arise from failures to properly incorporate previous contracts and agreements into subsequent agreements.
Early Contractor Involvement
It is common practice for a principal on a construction project to engage a contractor during the early stages of the project. This is usually done by way of an early works agreement or an ECI agreement or both.
Such agreements allow the contractor to become involved in the project and commence design and preliminary construction before the nature and scope of the project is fully ascertained. This not only allows the project to progress in a timely manner but also means the contractor is involved in the early stages and can provide its expert input into the development of the project.
Early works and ECI agreements may also be employed where the parties need time to negotiate a contract, but time constraints mean the project cannot simply sit idle during negotiations.
Prior Works Clauses
What are Prior Works Clauses?
The works subject of early works and ECI agreements almost always form part of the whole works subject of the relevant project. For this reason, it is common for contractual clauses to be included in a subsequent agreement to provide that the subsequent agreement covers any prior works performed.
A prior works clause will often provide something along the lines of:
The terms of the Contract apply to all of the work performed by the Contractor in connection with the WUC even if it was performed prior to the date of execution of the Contract. Any payment made to the Contractor by the Principal in connection with WUC prior to the date of execution of this Contract will be treated as a payment under the Contract.
What do Prior Works Clauses Really Cover?
Prior works clauses may be as elaborate and cover as many aspects of prior works as the parties agree. The usual focus of prior works clauses is to ensure that any prior payment, time, and/or scope of works form part of the subsequent agreement.
Parties may agree that payments under some or all previous agreements do or do not form part of the contract sum under the subsequent contract. Prior works clauses may also provide that time under a previous agreement is or is not considered as part of the time allowed under the subsequent contract.
As previously mentioned, the focus of this article is on the incorporation of the descriptive elements of prior works into subsequent agreements.
Don’t Prior Works Clauses Necessarily Include the Descriptive Elements of the Prior Works?
Many will argue that the adjudication determination which prompted this article is wrong at law, and that if prior works are incorporated into a contract by a prior works clause, then the description of those prior works must, as a matter of logic, be incorporated, otherwise it would be completely unclear as to what prior works the parties are even talking about.
In the context of adjudication, a determination is only appealable on the basis of a jurisdictional error (see our article on jurisdictional errors in adjudication here) and therefore adjudicators are largely free to make legal errors without repercussion. In the face of such a legal error, contractors are then left in a position where they are forced to commence lengthy and costly legal proceedings to recover payment.
The fact that an adjudicator’s incorrect legal conclusion could place a contractor in such a difficult situation highlights the importance of making it abundantly clear in a prior works clause what exact aspects of the prior works are incorporated by reference into the subsequent agreement.
A potential way to ensure that prior works and all their descriptive elements including scopes of works are properly incorporated into a subsequent agreement is to annexe the relevant descriptive elements to the subsequent agreement and include an appropriate provision referring to that annexure. This provides clarity to the parties as to what is covered by the subsequent agreement.
Key Take Away
Given the lengths that some adjudicators may go to deny or enable a claim, it is crucial to adopt a “belts and braces” approach to ensuring that works under contract are not only specified with abundant clarity and precision, but that prior works and all their descriptive elements are properly incorporated into any subsequent agreements.
If you would like to discuss this article with us, please contact Brett Vincent, partner, or Maddy Manousaridis, Senior Associate on (02) 9261 5900.