We know how tempting it can be to get started with work before a contract is agreed. The client is pushing for things to get moving, your company wants the income and relationships are rosy at the start. But please take our warning that the consequences of doing so can be great if things subsequently come crashing down around you!

The recent case between Arcadis and AMEC highlighted the need to have the paperwork agreed before work commences and was interesting as it involved a local multi-storey carpark (we’re lawyers, it doesn’t take much to get us excited!)

Problem
The problem occurred because the work started before contract negotiations were finalised.

There was a huge disparity between what each of the parties believed had been agreed (or not agreed) regarding the extent to which Arcadis was liable to cover AMEC’s losses – anywhere between £610,515 and £40 MILLION!

Lessons learnt
If you’re not as nerdy about cases as we are – we’ve started with the lessons that you can take away from this case, so you don’t need to read through all the facts first!

This case reinforces why it’s important to have a written contract in place before things go wrong. But more than that, a contract is only worth the paper it’s written on if you can clearly point to a version of the contract being agreed.

Tips to avoid being left in a similar situation:
• start the negotiations well ahead of any proposed start date
• carry out contract negotiations quickly and effectively
• mark correspondence and draft contracts “subject to contract”
• ensure all blanks are completed – not left marked as “TBA”
• clearly set out any limitations on liability
• don’t start any work until the contract is agreed!

Remember that even with the best of intentions at the outset, sometimes things won’t be agreed!

CASE STUDY
Facts
AMEC, a specialist concrete subcontractor, engaged Arcadis to carry out design works in connection with the Castlepoint carpark (and another project).

The carpark was later found to have serious construction issues, and possibly needs to be demolished and rebuilt. AMEC’s losses was put at £40 million and it was seeking to recover this from Arcadis for defects in the design work. (Bearing in mind the fee for the work in question was only £285,000.)

The Terms and Conditions were still being negotiated when the work was carried out (and a final version was never agreed), meaning that either:
• there wasn’t a written contract between the parties OR
• one of the versions of the Terms & Conditions that had gone back and forth between the parties formed the contract.
If the Terms & Conditions were the contract – which version was the correct version and what was the cap on liability?

Court ruling
The High Court found that – as there was too much uncertainty and too much left “not agreed” – none of the versions of the Terms & Conditions could be inferred to be the basis of the contract and as such Arcadis’ liability was uncapped. Meaning that Arcadis was liable for the full cost of the repairs to the multi-story car park and AMEC’s other losses – i.e. £40 million!

Acradis, unsurprisingly given the consequences of this decision, appealed this decision!

Just to prove how much confusion all the to-ing and fro-ing had caused, the Court of Appeal disagreed with the decision of the High Court!

Instead, it found that the correspondence proved that the parties intended that the first version of the Terms & Conditions issued governed the work. The judge found that this was an “interim contract” until such time as the final agreement was signed. The final agreement would then override the Terms & Conditions – although that final contract was never agreed so the interim Terms & Conditions continued to govern the work.

As a result Acardis’ liability was limited to £610,515 – quite a drop from £40 million.

“Key takeaways”

If the parties had simply agreed the T&Cs prior to the work starting, they would have each been spared all of this uncertainty and the pain and cost of a court case, on top of the day job!

Stemming from this is the reminder that working without a contract opens you up to uncapped liability if things go wrong – something we would never advise our clients to accept.