Unknown case

In valuing a contractual variation involving both omitted and additional work, the Engineer must identify the contribution made by the omitted work to the original Contract Price. The valuation is not generally based on a hypothetical calculation of the time or cost that the contractor would have incurred had the omitted work continued. A variation clause must be interpreted within the contract’s wider allocation of risks, payments and remedies. Contractual mechanisms for delay, including liquidated damages, should not be converted indirectly into an adjustment of the Contract Price.

MT Højgaard A/S contracted with E.ON to design, manufacture and install offshore wind-farm foundations using the LISA vessel. When the LISA proved inadequate, variation orders required the use of the Resolution, hired directly by E.ON, and reduced the work to be performed with the LISA.

The parties agreed that the variations required an adjustment to the Contract Price but disputed the valuation method under clause 31.3. The preliminary issues concerned the characterisation of the variations, the operation of the three valuation limbs, and whether the Engineer could use hypothetical installation times and costs.

1. Characterisation of the variations. The provision and use of the LISA formed part of the contractual “Works”. The variation orders therefore involved an omission of part of the Works associated with the LISA and an addition of work associated with the Resolution. Clause 31 applied to omissions as well as additions.
2. Operation of clause 31.3. The three limbs of clause 31.3 identify a hierarchy of valuation methods. Directly applicable rates should be used where available. Otherwise, suitable rates reflecting the level of pricing in Schedule L1.3 should be established. Where no relevant rates exist, the amount must be what is reasonable in all the circumstances. Different limbs may apply to different constituent items within one variation.
3. Valuation of omitted work. The Engineer’s objective under each limb is to approximate the contribution made by the omitted parts of the Works to the original Contract Price. Schedule L1.1 was relevant context, although the Engineer was also required to have regard to the rates in Schedule L1.3.
4. Rejection of E.ON’s approach. The proposed deduction based on the hypothetical time required for the LISA to complete the works was inconsistent with the contract’s fixed-price structure. It would also introduce an uncertain and potentially fictitious calculation, and would give E.ON the benefit of notional costs which would not otherwise affect the parties’ contractual account. Delay was addressed by the contract’s separate remedies, including liquidated damages, rather than by altering the Contract Price.
5. Additions for the Resolution. The valuation must take account of the attendant equipment and labour supplied by MTH while working with the Resolution.
6. The preliminary issues were answered substantially in favour of MTH. Issues 5–7 and 10–12 did not arise.

First-instance determination of preliminary contractual issues in the Technology and Construction Court. The judgment did not determine the final monetary valuation of the variation orders.