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John Sheils, partner, Shadbolt & Co

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In his regular law blog John Sheils, partner at Shadbolt & Co, takes a look at the OFT..

"Season of mists and mellow fruitfulness"…I was drowsily mulling over Keats' beautiful Ode to Autumn the other afternoon whilst enjoying the last gentle rays of sunlight when suddenly the door burst open and in strode my office neighbour Dominic Helps.

If you are one of the few people who have not experienced Mr Helps, he is a bit like Winston Churchill in an Elvis wig, though less rotund (open to debate) but very much more ebullient (not open to debate).

He thrust a piece of paper onto my desk, concluded that the situation was "outrageous!" and left as suddenly as he arrived.

I was temporarily disconfabulated but, eventually, I began to focus on the article left on my desk. I soon realised that the OFT had been up to their old tricks. You may recall I wrote about the actions of the OFT in the hard copy version of this organ a while back before being consigned forever to cyber space.

All the trouble began when the OFT "discovered" that some contractors had been engaged in cover pricing. The whole thing made Radio 4 and the 10 o'clock News and the industry hung its head in shame.

It now appears that the OFT have asked Blackwells, the publisher, to change some text relating to cover pricing in one of its books. The book, Construction Planning and Control (4th Edition) by Brian Cooke and Peter Williams contains the following passage.

Do we want the work or should we take a cover price (ie an arrangement whereby one contractor is given a price by another contractor which is then submitted as a tender offer. The price will be sufficiently realistic to look like a bona fide tender but high enough so as not to win the contact)?

What this tells us is not so much that the authors got it wrong, but that cover pricing has been an open secret for years and years and in all of that time not once did the OFT or its predecessors bother to do anything about it.

Now, all of a sudden, rather than deal with the root cause of the problem, which lies in procurement practices, the OFT have instead sought to drag the industry over the coals.

The whole state of affairs might well be described as "outrageous".

12 September 2008: The Draftsman's Contract

You don't really get into the disputes side of the law unless you enjoy a good old fashioned dust up. Of course, lawyers must be more careful nowadays, a row might be fun but it can also be expensive and the courts will no longer tolerate costs being wasted on pointless aggression.

The days of the rottweiler are fading fast. Lawyers are now expected to adopt a more touchy feely approach or face the consequences when their Lordships come around to divvying up the costs of an action. I'm not suggesting for one moment that you would want to hug a lawyer or anything like that, but we are now expected to be nicer to each other, even if it is sometimes through gritted teeth.

Given this new world of litigation it is refreshing to see two parties tearing into each other with abandon. Step forward the Royal Institution of British Architects (RIBA) and the Association of Consulting Architects (ACA). Boy are these two organisations not getting along. The trouble stems from the RIBA's latest standard form of appointment. The ACA's President described the form as "lethal for architects" and Stephen Yakely, who sits on the ACA's Council, described the new conditions as "flawed and toxic" - ouch! 

It gets better, Mr Yakely formerly sat on the RIBA committee that developed the previous RIBA standard form of appointment, published back in 1999, so he speaking from a position of some authority.

The RIBA hit back by saying that the ACA had been consulted during the preparation of the new form of appointment but the ACA have returned fire by saying they were never consulted. 

But wait there's more… the ACA has now produced its own standard form and in the blurb on the ACA's web-site promoting the new form they state, somewhat caustically:

Architects are strongly advised to seek specialist legal advice if they propose to use the new RIBA forms so that they can fully understand the risks they could incur in doing so.

What fun!

28 August 2008: The industry cannot afford to fail at the Olympics project 

What a fantastic Olympics, I think the greatest moment came when Shanaze Reid, our Queen of the BMX, made that death or glory dive for the line only to crash out and lose everything to the dastardly French. In fact, our women were inspirational in Beijing. Yet the way women's sport is treated by the media in this country is an absolute disgrace. I was shocked to discover that in a normal year only about 5 per cent of all coverage of sport on TV involves women, take out the tennis and it's practically nothing. That surely can't be right.

However, the opportunity to change all of that is now upon us and leading the charge is the construction industry. The industry simply cannot fail at Stratford. To help things on their way the ODA has procured the various parts of the Olympics project via amended versions of the NEC 3rd Edition. There are many views as to the efficacy of the NEC but it is a fact that you'd be hard pressed to find a reported case involving the form. The most celebrated involved the Channel Tunnel Rail Link and the finding that the Project Manager under the form was required to act impartially (Costain Ltd & Others v Bechtel Ltd).

The facts of the case are straightforward: Bechtel, who supplied the majority of the staff to the project manager on the project also had a stake in the project. When costs on the project began to overrun a Bechtel manager appears to have encouraged Bechtel staff, who were employed by the project manager, to take a more robust approach in respect of costs. The contractor JV got to hear of this and complained to the courts. It was held that while Bechtel had not been dishonest in any way, the suggestion that staff take a robust attitude to costs might be looked upon as causing the Project Manager to become partial towards the employer and this was not acceptable under the NEC form where the Project Manager was expected to be impartial.

13 August 2008: So it's Olympics time again.

The coverage of the Olympics on the TV has generally been very good and has rekindled my interest in sports as diverse as judo and badminton (weirdly I have been a practitioner of both in my time). However, I must say that I have been bitterly disappointed by the woeful TV coverage of beach volley ball. It seems that just because Team GB didn't qualify we are now to be deprived of all the action from the Chaoyang Park Beach Volleyball Ground and instead must endure "sports" such as dinghy sailing and dressage just because there is a scintilla of a chance that we might actually win something.

Anyhow, there I was the other morning nodding off in front of the rythmic gymnastics when, with a start, it struck me that it was our turn next and there are only four years left to go. However, there was really no need to panic as it seems the ODA are going great guns and are due to deliver on time and without too much strife.

The apparent lack of gnashing teeth down at the Olympic Park might be to do with the fact that the ODA has included a provision within its contracts for dispute resolution boards (DRBs). The purpose of DRBs is to review disputes as they arise between the parties and advise on settlement. Their decisions are not normally intended to be binding. However, the really interesting thing about DRB's is that the members are expected to take an interest in the project and become familiar with its workings, this ought to mean that disputes can be headed off at an early stage.

The use of DRBs is now standard in many international projects and provided that the domestic market becomes persuaded of their efficacy (they are not cheap to run) they may soon become standard here too.

Anyway, in the unlikely event that the Olympic facillities in the East End are not completed by 2012, it matters not the beach volley ball is going to be at Horse Guards Parade and of course that's already built…I can't wait!

31 July 2008: What I did on my holiday

I'm just back from my holidays and what fun it all was. Among other things, I attended a ladies' surfing competition in Biarritz and took in a Status Quo concert in Cognac (a pleasing combination).

Talking of pleasing combinations I also developed a taste for Cognac and tonic (sounds disgusting but tastes good).

I see our prime minister is also on holiday. Although his chosen holiday attire of a heavy jacket and chinos is far removed from my own choice of Desert Rat shorts and capped sleeved t-shirt. An ensemble which drew many admiring glances from the surf girls, as I am sure you can imagine.

Anyhow, while the PM has been on holiday his government has been busy publishing a draft Construction Contracts Bill. This is the long awaited proposed legislation amending and supplementing the Housing Grants Construction and Regeneration Act. There are proposed changes to both the adjudication and payment provision as set out in the Act.

The proposals are full of interesting things. For example, there is a suggestion that Construction Contracts no longer have to be in writing for the Act to apply. The new Bill does however require that the adjudication provisions be in writing.

A slip rule is included for Scottish Adjudications; in England we already have such a rule by virtue of case law.

There are also new provisions concerning costs, but these are relatively unexciting seeking merely to stamp out clauses which make one party liable for the costs of the adjudication no matter what the outcome.

The Draft Bill also makes some important changes to payment provisions but sadly space constraints here do not permit me to take you through those.

BERR have produced an explanatory note of the Draft Bill (Google it) and any comments are to be sent back to BERR by 12 September 2008. I see that the person dealing with the responses is called Lilly Lotay.

Perhaps I've had too much sun, or not enough Cognac and tonic, but that name definitely has an air of surfing about it…

15 July 2008: Keep calm and carry on

Here on my desk I have a red mug and written on it in white are the words " KEEP CALM AND CARRY ON."

Apparently this phrase is taken from a poster produced by the government just before the WWII. The mug was given to me by my brother-in-law (he's officially "cool" - earring, plays the guitar, builds his own furniture, that sort of thing).

"Those words sing don't they?" the brother-in-law said to me as he gave me the mug. And it's true, "keep calm and carry on" could be the motto for our unsettled economic times.

Another phrase that sings in these uncertain times is "pay when paid."

However, as every schoolboy knows, pay when paid clauses were out-lawed in 1998 by virtue of the Housing Grants Construction and Regeneration Act.

However, an exception was made in respect of so called upstream insolvency - that is where a third-party payer, such as the employer, becomes insolvent. For example, a contractor may include a pay when paid provision in a sub-contract which will then operate in circumstances where the employer becomes insolvent.

The courts have already set out limitations as to when such a clause can operate. For example, the contractor cannot benefit from the clause where the reason why he has not been paid is as a result of his own breach. Also, the contractor is duty bound to use his best endeavors to pursue the money from the employer.

The idea of retaining this particular exception to the banning of pay when paid clauses was so that main contractors and sub contractors could share in the risk of an employer's insolvency.

Although, when I say the exception sings, I fear it may sing a requiem for some hard pressed subbies.

I suppose the only option in such circumstances is to keep calm and carry on.

30 June 2008: An Englishman, a Welshman and a Scotsman.

I can clearly remember my first ever introduction to the dark art of critical path analysis. It involved a consideration of those activities that one would do getting up. So there was plenty of wash face, brush teeth, comb hair (I had some then) and so on.

I recall that as I sat back to regard my own highly complex and totally incorrect network, I noticed that my neighbour, a hard drinking Welshman by the name of Evans, had produced an altogether more simple affair. It read: "get out of bed, go to bog, gargle with mouthwash, hit Union bar."

When identifying activities that were not critical, Evans chose "gargle with mouthwash" and, more mysteriously "go to bog". Thus the Welsh minimalist's critical path simply read "get up, hit Union bar."

I was thinking of Evans the other day when reading the Scottish case of City Inn Ltd v Shepherd Construction Ltd [2007] CSOH CA101/00.

In that case, which was a claim for an extension of time, the expert for Shepherd chose not to rely on a critical path analysis. Instead, he relied on a comparison of the as planned versus as built programmes.

City Inn said of Shepherd's expert's approach: "An expert could only give a meaningful opinion as to which activities in a project are critical on the basis of an as-built critical path analysis."

However, the Judge, Lord Drummond Young, did not agree and suggested that critical path analysis had serious dangers of its own especially if there were errors in production, which there appeared to be in the City Inn analysis. As a result, the judge chose not to rely on the City Inn's evidence and instead preferred the more common sense approach of Shepherd's expert.

No doubt, even now, Evans will be sitting in a pub somewhere, stinking of mouthwash saying: "I told you so."

18 June 2008: The wisdom of black-cabbies

The person I share the office with here has a degree in economics. So I asked him the other day whether the economy was in trouble. He babbled on for a bit about sentiment, and speculation and things like that but never actually answered my question.

So I decided to consult an expert and asked a black-cab driver about the prevailing economic climate. He said that, in his opinion, we were in an awful lot of trouble (in fact he described our situation in just one word but it can't be published here).

If the black-cab driver is right (and let's face it they are seldom wrong) we can expect an increase in insolvencies over the coming months. This is especially so in construction where liquidity and cash flow are the life blood of the industry.

In such circumstances, it is timely to consider what the law says about the ownership of goods. Section 17 of the Sale of Goods Act 1979 states that ownership of goods passes from seller to buyer when the parties intend ownership to pass.

Therefore, it is possible for the seller of goods to put a clause in his contract retaining ownership of those goods until such time as he has been paid for the goods in question. The legality of this type of clause was upheld in the case of Aluminium Industrie Vaassen BV v. Romalpa Aluminium Ltd (1976) and thus the Romalpa clause was born.

In order to make a Romalpa clause work a party must ensure that the clause is properly drafted, that it forms part of the contract between the buyer and the seller and that the goods which are the subject of the clause remain identifiable and must not have been incorporated into something else.

The law surrounding Romalpa clauses is not always straightforward, so before acting on such a clause it is often better to first seek advice from a lawyer or failing that a black-cab driver will no doubt usually be able to offer an opinion.

3 June 2008: It's time to learn to love mediation

Just recently I overheard a conversation outside court where a client said to his solicitor "I don't fancy mediation".

The temptation to linger was immense but propriety forced me to move on, which is a great shame because I really wanted to hear what the solicitor had to say.

The fact is, that where mediation is concerned it is not for a party to decide whether he fancies the process but rather whether or not the court will be persuaded that mediation was an inappropriate way of resolving the dispute.

This was the approach taken in the case of Halsey v Milton Keynes General NHS Trust (2004 EWCA (Civ) 576 where the Court of Appeal gave guidelines as to how a court should decide whether a matter would have been better dealt with by mediation rather than dragging things through the courts.

If the court does find that mediation would have been a more efficient way to resolve the dispute, then the party who didn't fancy the process may well find himself the subject of costs sanctions, even if successful.

However, it will no doubt come as a relief to mediation non-fanciers everywhere that the Court of Appeal also found in Halsey that the courts could not force the parties into mediation - to do so would be a breach of Article 6 of the European Convention on Human Rights. Article 6 is the one that gives parties the right to be heard by a court.

But that is not the end of the story, because on 8 May this year the Master of the Rolls, Sir Anthony Clarke, gave some personal insights on the Halsey case when speaking at the Civil Mediation Council National Conference. These included the view that Halsey might have been wrongly decided and that it might be possible for the courts to introduce compulsory mediation after all, as has been done in a number of other EU states.

Given this kind of indication it seems that parties may soon have to grow to love mediation whether they fancy it or not.