Airwave Solutions Limited v Secretary of State for the Home Department

Contractual indexation provisions must be construed by identifying what the parties agreed, rather than what they might sensibly have agreed. Where later contractual amendments extend an agreement beyond the final year for which express indexation weightings were provided, the court should not create a new methodology based on actual or averaged costs without contractual support.

Where the amended agreement provides that indexation will continue at existing contractual rates, and the available contractual materials support continuation of the last stated weighting, that construction may be adopted despite ambiguity and commercial imperfection.

Airwave and the Secretary of State disputed the construction of indexation provisions in a framework agreement governing public safety radio communications services. The original agreement specified indexation weightings for Elements A, B and C through contract year 20, ending on 31 March 2020.

Subsequent change control notes extended the agreement and set out charges for later years. The parties disagreed whether the contract year 20 weightings continued, whether later weightings should be based on actual costs, or whether the historical weightings should be averaged. A further issue concerned access to records showing actual costs.

The central questions were answered through construction of the framework agreement and Change Control Note 187.

1. Disposition. Key Issue 1 was answered yes. The contract year 20 indexation weightings applied from contract year 21 onwards until the end of the framework agreement. Key Issues 2 and 3 were answered no. No declaration was made on Key Issue 4.

2. The parties had originally specified indexation weightings only through contract year 20, apparently anticipating that the agreement would end by then. The later amendments did not expressly state what methodology would apply thereafter.

3. The wording of paragraphs 3 and 4 of Change Control Note 187 and the note to its Appendix 1 did not clearly provide that the contract year 20 weightings would continue. Nevertheless, paragraph 4 stated that indexation would apply in line with the indexation or variation-of-price provisions in Parts D and I of Schedule 8, while the Appendix 1 note referred to application at existing rates. Those provisions gave some support to continuation of the existing contractual rates.

4. The Secretary of State’s actual-costs construction failed because the framework agreement prescribed percentages rather than an actual-cost exercise. The descriptions of Elements A, B and C were too general to provide a workable method for allocating actual expenditure. The agreement contained no provision for combining incurred costs with estimated future costs.

5. The alternative averaging construction was also unsupported by the contractual documents. The court was required to determine what the parties had agreed, not what they might sensibly have agreed. The provisions offered no sufficient basis for either alternative construction, whereas Airwave’s construction had contractual support, albeit imperfectly expressed.