Practical Law

I’ve lost count of the amount of times that Matt and I have blogged about cases involving the exclusions to “construction operations” set out in section 105(2) of the Construction Act 1996. In almost all of those blogs that I’ve written, I’ve questioned the need for the exclusions and advocated their abolition: for example, see Let’s put section 105(2) of the Construction Act 1996 into Room 101!.

Many of the cases in question have concerned the exclusions at section 105(2)(c), namely the erection of steelwork to support or provide access to machinery on a site where the primary activity is power generation.  For example, just last week the TCC considered such an issue in C Spencer Ltd v MW High Tech Projects UK Ltd. However, I want to talk about a TCC case that concerned the supply only exclusion at section 105(2)(d), Universal Sealants (UK) Ltd (t/a USL Bridgecare) v Sanders Plant and Waste Management Ltd.

USL v Sanders

This case was handed-down by Jefford J in August and is an interesting little number.

USL had been engaged to undertake replacement of expansion joints to a viaduct in Gateshead, and it employed Sanders to supply the concrete. USL alleged that the concrete supplied was defective and required replacement, and a dispute arose as to whether Sanders was in breach of the contract and, if so, the damages owed to USL.

The dispute was referred to adjudication, and the adjudicator found that Sanders was in breach of the contract and was liable to pay damages of £52,259. Sanders had participated in the adjudication, but had reserved its position on jurisdiction on two grounds:

• The adjudication had been commenced under the wrong contract.
• Regardless of which contract applied, it contained no adjudication provisions.

It was common ground that neither version of the contract contained express adjudication provisions and therefore the adjudicator’s jurisdiction could only have flowed from terms implied by the Construction Act 1996. Sanders argued that the Construction Act 1996 did not apply because the delivery of concrete falls within the exclusion in section 105(2)(d).

This provides that the following are not “construction operations”:

“… manufacture or delivery to site of—

(i)  building or engineering components or equipment,

(ii)  materials, plant or machinery, or

(iii) components for systems of heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection, or for security or communications systems,

except under a contract which also provides for their installation.”

USL v Sanders – findings

Jefford J found that the contract was formed as USL contended, but I don’t want to dwell on that part of the judgment. Rather, I want to focus on the section 105(2)(d) issue.

It was common ground that the supply of concrete fell within the exclusion in section 105(2)(d), but the question remained as to whether in this instance the “installation” exception to the exclusion applied.

Jefford J made the point that, although there was no express reference in the contract to Sanders installing the concrete, this was not determinative. She said that in order to fall within the exception to the exclusion it was unnecessary for the contract to specifically contain a reference to, or to use the word “installation”, but she acknowledged that the absence of any such reference is indicative of the nature of the contract between the parties.

Jefford J also said that the word “installation” should not be given a narrow construction, and what it connotes is some work done to the materials after delivery. She referred to the express wording of section 105(2)(d) in support of this construction which, she said:

“… frames the exception to the exclusion as one under a contract: ‘which also provides for their installation’, i.e. the installation of the materials, and the very use of the word ‘also’, to my mind, suggests that something other than delivery is what is in contemplation in that exception.”

Ultimately, Jefford J found that the act of delivery and pouring amount to the same thing, and that the pouring does not amount to an additional act of installation. As such, she found that the exception to the exclusion in section 105(2)(d) did not apply, which in turn meant that:

• The supply of concrete fell into the exclusion in section 105(2)(d).
• The adjudication provisions of the Construction Act 1996 were not implied into the contract.
• The adjudicator’s decision was not enforced.

My take-aways

The excellent Practical Law update on this case describes the result as “unsurprising“, but whether or not that is the case on the facts of USL v Sanders, I don’t think that it automatically follows that the supply of concrete will always exclude installation. For example, what if the wagon driver uses a vibrating poker to remove trapped air which, otherwise, the concrete company could be liable for? Arguably, this would amount to work being done to the concrete after delivery, and therefore installation.

However, what if the wagon driver adds an additive to the concrete at the contractor’s request during the pouring process, or the concrete company is also contracted to supply a pump to pump the concrete to a particular part of the site? Would the pouring of the concrete still be part of the delivery in these circumstances? Possibly, as the concrete would still not be being worked-on after delivery.

I think that this case further reinforces the need to abolish the exclusions in section 105(2) because:

• In the various government consultations we’ve had over the years on the Construction Act 1996, the question has always been raised as to how the costs of adjudication can be reduced. If there were no exclusions, parties would save money as they would no longer have to argue about whether the Act’s adjudication (and payment) terms apply in a given situation. They will just be implied, and the parties will have the benefit of adjudication.
• Some will no doubt argue that there is obviously a simple way to overcome the issue of whether the adjudication provisions of the Construction Act 1996 are implied in cases such as USL v Sanders, and that is to include express provisions in the relevant supply contract. However, that is not always so simple when dealing with large suppliers who will only operate on their own standard terms.

Therefore, I maintain that section 105(2) should be banished to Room 101, and in support leave you with the comments of Coulson J (as he was then) in Severfield (UK) Ltd v Duro Felguera UK Ltd (paragraphs 62 and 63).  Although these concerned the exclusions at section 105(2)(c), I consider that they equally apply to section 105(2)(d):

“All of the difficulties here, in both the old and the new proceedings, can be traced back to s.105 of the 1996 Act and the legislature’s desire to exclude certain industries from adjudication. A review of the debates in Hansard reveal that Parliament was aware of the difficulties that these exceptions would cause, but justified them on the grounds that (i) adjudication was seen as some form of ‘punishment’ for the construction industry from which (ii) the power generation and some other industries should be exempt, because ‘they had managed their affairs reasonably well in the past’.

I consider that both of these underlying assumptions were, and remain, misconceived. Adjudication, both as proposed in the Bill and as something that has now been in operation for almost 20 years, is an effective and efficient dispute resolution process. Far from being a ‘punishment’, it has been generally regarded as a blessing by the construction industry. Furthermore, it is a blessing which needed then – and certainly needs now – to be conferred on all those industries (such as power generation) which are currently exempt. As this case demonstrates only too clearly, they too would benefit from the clarity and certainty brought by the 1996 Act.”