SWI Ltd v P & I Data Services Ltd

A construction subcontract expressed as work to be completed for a stated sum, without unit rates, is a fixed-price contract unless a contrary agreement is established. Interim measurement and valuation do not convert it into a unit-priced contract. The fixed-price classification does not itself determine whether variations may be required or whether the price may be reduced. A price-reduction term must be express or necessary to give the contract effect. Substantial performance permits recovery of the fixed price subject to deductions for unperformed or defective work, but assumes a breach. It does not justify a deduction where the contractor performed less because the specification was changed and less work was requested. The appeal was dismissed.

SWI Ltd, a subcontractor, claimed £51,114.66 from P & I Data Services Ltd for building works at a GSK site. The Luton County Court held that the subcontracts were fixed-price contracts, that SWI had substantially completed the works, and that P & I was not entitled to reduce the price despite a joint expert’s valuation of alleged underperformance.

P & I appealed. It argued that the contracts were unit-priced, or had become so through their operation, and alternatively that express or implied terms entitled it to vary and reduce the work and the contract price. The central issues concerned contractual classification, variations and the application of substantial performance.

1. Appeal dismissed. Lord Justice Waller gave the judgment; Lord Justice Keene and Lord Justice Dyson agreed.
2. The written subcontracts comprised tenders and purchase orders describing works by reference to drawings and stating that they were complete for specified sums. The tender documents contained broad itemised sums but no individual unit rates. Those documents established fixed-price contracts. No oral agreement had been proved which converted them into unit-priced contracts.
3. Monthly measurement and valuation for interim payments did not alter that conclusion. In the absence of unit rates, the measurements showed the amount or proportion of work completed against the fixed scope and the corresponding interim payment.
4. The fixed-price description did not itself determine the parties’ rights concerning variations. Ordinarily, without a contractual term permitting variation, the paying party could not reduce the work required under a fixed-price contract. If the paying party waived the right to have all the work performed, the contractor remained entitled to the full price for what had been done and was not in breach for omitting the waived work.
5. Even if a term could be implied requiring SWI to accept variations requested because GSK had altered the specification, it did not follow that the price had to be reduced. On the facts, the subcontracts remained substantially the same as those quoted for, and a term reducing the fixed price could not be implied. The possibility of a fundamentally different variation, such as removal of an entire floor, was left open.
6. The doctrine of substantial performance did not assist P & I. It operates where a contractor has failed to perform or has performed defectively, allowing recovery of the contract price subject to an appropriate deduction. SWI had instead performed the reduced work requested after changes to the specification. Any entitlement to a price reduction therefore depended on an express or necessary contractual term, which P & I had failed to establish.

• Court of Appeal (Civil Division): Appeal from the Luton County Court dismissed after the hearing on 16 May 2007; judgment handed down on 4 July 2007, [2007] EWCA Civ 663.
• Luton County Court: District Judge Hewetson-Brown gave judgment on 13 November 2006 for SWI Ltd in the sum of £51,114.66, holding that the subcontracts were fixed-price contracts and that no reduction was due.