Jacobs UK Ltd v Skidmore Owings & Merrill LLP

A contractual obligation to award contracts ordinarily requires concluded contracts, not merely offers or opportunities to bid. The court should construe settlement terms in their commercial and contractual context, giving effect to the words chosen by the parties. A framework-style agreement may be enforceable even though individual contracts require further negotiation, particularly where the agreement provides mechanisms for resolving matters such as price. Where the agreement contains a clear fallback payment for work not awarded, that obligation remains enforceable. If an alternative construction permitted preliminary offers, implied terms may be necessary to prevent unreasonable demands and to preserve the parties’ mutual commercial purpose.

Jacobs had brought proceedings against SOM for unpaid fees. The proceedings were compromised by a Tomlin order incorporating the parties’ June 2009 agreement. SOM agreed to award Jacobs contracts for at least 33,500 hours of services within two years, with a payment of £15 per unfulfilled hour if the obligation was not met.

SOM awarded only a small contract. It argued that requests for a proposal concerning a Riyadh conference centre discharged its obligation, or alternatively that Jacobs’ failure to bid defeated the claim. The issues were whether “award” required concluded contracts, whether the agreement was enforceable, and whether the Riyadh events satisfied the obligation.

1. Construction. The word “award” in the June 2009 agreement meant the award of concluded contracts, not merely an offer or an opportunity to bid. In ordinary construction-industry usage, awarding a contract denotes a binding agreement. The parties’ choice of “award”, rather than “offer”, was significant. A construction allowing SOM to discharge its obligation by making unsuitable or ineffective offers would confer a substantially inferior benefit on Jacobs.
2. Enforceability. The arrangement was not an unenforceable agreement to agree. It operated in a manner similar to a framework or call-off agreement. Individual contracts could be negotiated separately, while the agreement contained a mechanism for resolving disputes about fees. In any event, the fallback payment for unawarded work was clear and enforceable independently.
3. Good faith. The agreement involved mutual commercial conduct and carried general obligations of good faith. Those obligations did not require additional terms where the primary construction was adopted.
4. Riyadh project. Alternatively, the February letter and March email did not amount to an offer of a contract. They gave advance notice of a possible opportunity and requested a lump-sum proposal within an impossibly tight period. The request was also inconsistent with the agreed fee mechanism. Even if it constituted an offer, Jacobs was entitled to decline to bid where, acting reasonably, it considered that capability, logistical or timetable difficulties made the work unsuitable.
5. Disposition. SOM had not fulfilled its obligation. Jacobs succeeded and was awarded £498,750, calculated by reference to the 33,250-hour shortfall at £15 per hour. Costs and other matters were reserved for separate consideration if requested.

Not stated in the judgment. This was a first-instance decision of the High Court (Technology and Construction Court).