Under the Engineering and Construction Subcontract the Contractor may give an instruction changing the Subcontract Works Information to remove/reduce the scope of work. This is a CE 60.1(1); quotations are submitted, assessed and implemented. So far so good. Everyone’s happy.
The Contractor then decides he is going to give that work to AN Other to complete. In general terms this would be a breach of subcontract by the Contractor and the Subcontractor would be entitled to damages.
A breach of subcontract is a CE under 60.1(18), and as a CE the rules under 63.1 have to be followed - how would the Subcontractor be able to recover damages (loss of profit etc) following these rules?
A really interesting question.
First off, I am not sure that the right remedy here really is a CE (despite the contract saying that CEs are the only remedy that is not necessarily the case). Importantly this type of breach can very easily amount to a repudiation of the contract (that is the contract being terminated in whole) it will depend on the severity of the breach, ie how much of the contract has been removed and re-let.
You could look at this under the CE process. However, you are quite right that the terminology is difficult to apply in the circumstances. Putting aside what the contract says, what you want to include is the Fee element on the work wrongly removed and given to others plus (I would add) any “risk” allowance arising from your ability to re-allocate/assign people and equipment.
As a follow up to this question the recent Scottish Case of Van Oord v Dragados confirms that (in Scotland at least), without a suitable z clause amendment, such an omission is a breach of contract and therefore the CE rules should apply. Which leads back to my original question - exactly how does one recover loss of profit/fee under the CE rules in these circumstances?
It seems like this is a question still to be answered judging by the following paragraph from the judgement:
“In addition to the conclusions already mentioned, the pursuer seeks payment of a
sum representing the 12.5% fee due in terms of the subcontract in respect of the work
removed from the pursuer’s scope of work by the disputed Contractor’s Instructions. In the
course of the debate, the defender submitted that this claim was irrelevant, amounting in
effect to a common law damages claim of the kind excluded by clause 63.4, and in any event
that it was excessive because the 12.5% figure did not consist wholly of profit. Those
arguments were not, however, contained in the defender’s note of argument and I prefer to
reserve consideration of them until parties have had an opportunity to consider the
implications for this conclusion of my opinion in relation to the other issues. I shall hear
further argument if necessary.”
I think the hint here from the court, when the rest of the judgment is considered, is that you wont get the 12.5% as such. What you must do is follow the CE rules of evaluation. In such circumstances lost profit cannot be directly recovered on a reduced scope but it is possible that the context of the pricing as a whole has changed as a consequence and there are wider considerations that should be taken into account.