Hallamshire Construction Plc v South Holland District Council

Where parties agree an architect’s instruction as a variation to an existing construction contract, the instruction may have contractual effect even though the final scope and price remain to be settled. The agreed pricing mechanism need not involve a single offer covering the whole works and an unqualified acceptance. It may provide for piecemeal agreement of individual work items, rates and prices, particularly where the underlying contract contains established procedures for valuing variations. Once those contractual procedures have produced agreement on the relevant items and remuneration, the absence of a conventional offer and acceptance for the complete package is immaterial.

The claimant contractor appealed on a question of law from an arbitrator’s award arising out of a JCT local-authority building contract. The dispute concerned phase 2 fitting-out works added by Architect’s Instruction 51. The instruction provided that the works would be carried out under the existing contract, subject to specified amendments, and that all costs would be agreed at fair and reasonable costs by the quantity surveyor.

The arbitrator found that the instruction had been negotiated and agreed as a variation to the existing contract. He also found that the work scope, rates, prices and overhead and profit mark-up had been agreed through a combination of offer and acceptance, negotiation and conduct. The central issues were whether the instruction had contractual effect and whether its pricing mechanism required agreement of the bills as a composite whole or permitted piecemeal agreement.

1. The appeal was dismissed and the arbitrator’s award was confirmed.
2. The challenge to the contractual effect of Architect’s Instruction 51 did not raise an appealable question of law. On the arbitrator’s findings, the parties had negotiated and agreed the terms of the instruction and had agreed that it would operate as a variation to the existing contract. Those findings of fact were unappealable.
3. The phrase requiring all costs of the variation to be agreed at fair and reasonable costs had to be construed in the context of the whole instruction and the factual matrix known to the parties when it was agreed. The instruction operated against an existing JCT contract containing procedures for ordering and valuing variations, including omission, specification change and re-rating.
4. The contractual process contemplated further revision of individual work items, drawings, specifications, rates and prices. It therefore required agreement of individual items and their costs, rather than negotiation and finalisation of an entirely new contract or composite set of bills.
5. Applying the arbitrator’s findings, the parties had agreed the cost of the phase 2 work, including the mark-up. A single offer for the complete works and a conventional unqualified acceptance were unnecessary. The absence of acceptance in those contractual formation terms was immaterial.

• Arbitration: The arbitrator published a first award on 20 September 2003, corrected under section 57(3)(a) of the Arbitration Act 1996 and finally published on 7 October 2003.
• High Court (Technology and Construction Court): The appeal on a question of law was dismissed and the arbitrator’s award confirmed.