REUTERS | Dinuka Liyanawatte

Bogged down in paperwork over steelwork exceptions under section 105(2)

The meaning of construction operations (in section 105(1)) and the exceptions (under section 105(2)) are one of the more difficult areas of the Construction Act 1996 to get to grips with. We may know that they are the result of lobbying back in the 1990’s, but I’ve never really understood the rationale for them and it doesn’t make it any easier for those of us at the coal face of implementing the Act.

The latest power station steelwork to be the subject of argument under 105(2) came before Stuart-Smith J earlier this year in Severfield v Duro.

Severfield (UK) Ltd v Duro Felguera UK Ltd

The parties had entered into a contract whereby Severfield would design, supply and erect steel structures for Duro at its new combined cycle gas technology power plant in Carrington, Manchester. Severfield did so, erecting various steel structures in the turbine hall and at various electrical modules (which supplied electricity to the site). Apparently other steelwork contractors were also on site.

By the time of interim application for payment 15, a dispute had arisen. Severfield realised that not all of its works fell within the scope of section 105(1) and so, when it referred the dispute to adjudication, it attempted to exclude those works it considered fell within section 105(2). However, it still included all fabrication and delivery elements of the works, and the erection element of the steelwork in the turbine hall and the electrical modules (some £822,000 and £229,000 respectively). As aggregate sums for fabrication, delivery and erection had been included in application 15, Severfield calculated the proportion that it thought was appropriate to claim in the adjudication. Application 15 also included a claim for variations, which it also claimed a percentage for in the adjudication (variations to turbine hall steelwork at 35% and electrical modules at 26%).

One may not be surprised to read that Duro objected to Severfield’s adjudication, arguing that the adjudicator (Mr Davis) lacked jurisdiction because the referral included works caught by section 105(2)(c):

“(c) assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is-

(i) nuclear processing, power generation, or water or effluent treatment, or…”

Duro supported its argument with a “technical note” describing the works in the turbine hall and to the electrical modules, Mr Fitch’s report (who was a quantity surveyor) and an opinion by Adrian Williamson QC. Severfield replied and the adjudicator gave a non-binding ruling. He said he preferred Severfield’s approach to that of Duro, which was “akin to a minute analysis of the work”. The adjudication continued and Duro reserved its position.

Enforcement proceedings

Unsurprisingly, Duro did not comply with the adjudicator’s decision because (it said) it included works that should be excluded. When it came to the enforcement proceedings, it maintained its argument and supported it with more evidence, this time a report by Mr De Silva at William J Marshall. Mr De Silva had analysed the steelwork and sought to identify the parts that should not be included in the adjudication. Mr Fitch also provided another report.

In reply, Severfield’s associate commercial director, Mr Bogg, put in a statement. This highlighted that Mr De Silva’s report included steelwork over which there was “considerable doubt” that it was part of Severfield’s works at all. Severfield’s counsel described it as “being ‘plonked’ there by others”.

On the evidence before it, the court seemed to have little choice but to refuse summary judgment to enforce the adjudicator’s decision. In reaching this conclusion, the court considered the Ramsey J judgments in North Midland Construction plc v AE&E Lentjes UK Ltd and Cleveland Bridge (UK) Ltd v Whessoe-Volker Stevin Joint Venture, and made a number of observations regarding Ramsey J’s conclusions on the exception in section 105(2)(c) of the Construction Act 1996.

Conclusion

To my mind, a lot of time and effort was devoted to defending an interim application for payment. The total sum being claimed may be in excess of £3 million, but the enforcement proceedings sound expensive. Perhaps some of those resources could have been directed to assisting the adjudicator, who may then have arrived at a decision that both parties were happy with.

It also demonstrates the difficulties that section 105 throws up in practice. Some items of work are included while others aren’t, some sites are included, others aren’t. Even the parties here agreed that some of the works fell within the exception, but disagreed over how Severfield and, subsequently, the adjudicator had calculated the sums that attached to those works.

As Jonathan said (when he wrote about Laker v Jacobs), section 105(2) should be consigned to George Orwell’s fate worse than death, Room 101!

MCMS Ltd Matt Molloy

Leave a Reply

Your email address will not be published. Required fields are marked *