What happens when your pre-construction services agreement fails?

19 March, 2018

Pre-Construction Services Agreements (“PCSAs”) are increasingly being used in large and/or complex construction contracts, combined with two-stage tendering.  The contractor partner may be selected on the basis of overheads and preliminaries and non-financial factors such as track record, capacity for the works etc.  The aim is that risks can be exposed at any early stage to produce more robust pricing but the “downside” is the possible loss of competitive pressures at the final pricing stage.  However, the recent decision in Almacantar (Centre Point) Limited v Sir Robert McAlpine Ltd highlights other risks.

In the case, developer Sir Robert McAlpine Ltd (“SRM”) was ordered to pay Almacantar, owners of the landmark Centre Point tower in central London, just over £1m in fees under an agreement relating to the £100m redevelopment of the landmark Centre Point tower.

The parties had entered into a Pre-Construction Services Agreement (“PCSA”) in 2012 which, two years later, was terminated by consent.  The dispute centered on SRM’s right to further payment following that termination and, in particular, to the balance of 50% of the fee.

SRM originally succeeded in adjudication back in June 2017 and so Almacantar sought a declaration that SRM was only entitled to the balance if they entered the construction contract and, due to SRM not having done so prior to the termination of the agreement, there was no such entitlement.

Here, Almacantar intended to procure the project using a two stage procedure: the first being the selection of a contractor to enter into the PCSA and the second being the development of the Contractor’s Proposals and a Contract Sum, leading to a design and build contract.

SRM raised three arguments.  Firstly, the second 50% of the fee was payable after the first valuation subsequent to commencement on site under the main contract as “Main Contract” was defined as a contract with any contractor, not just SRM.  Secondly, as the Fee was described as a “lump sum” payable in instalments, it was not the commercial intention that the second 50% would not be paid at all.  Finally, the parties could have agreed that the second 50% was only payable if the main contract was entered into with SRM but they did not do so.

The judge, Jefford J, acknowledged the strength of these arguments.  However, she instead felt that the correct view was that the provision for one further application for payment at termination to cover any instalments of the fee that had accrued due applied and ordered the repayment of the sum awarded under the adjudication to Almacantar.

She also looked at the commercial context and said the fundamental purpose of the PCSA needed to be considered.  In most cases, termination would mean that Almacantar would lose the benefits under the PCSA and would have to go back to the beginning with another contractor.  She found the argument that (if a contract was entered into with another contractor) SRM could claim the second half of the fee made little sense.

So what lessons can be learnt here?  From a reading of the case, it is clear that much turned on the particular drafting.  That is nothing new and we, as lawyers, are always advising clients to ensure documents are properly drafted to reflect their intentions.  Of particular relevance may be the need to pay more attention to termination provisions generally – the parties may hope these will not be used but in circumstances such as PCSAs, where parties are trying out a relationship with each other (and the nature of the project may be more speculative), they surely justify detailed attention!!