Yet another example of the dangers of starting work on a project before finalising the contract…

A contractor started work on a project to build a car park. It brought a sub-contractor in to do design work. When significant problems surfaced with the work – there was talk of knocking the whole thing down and starting again – the contractor blamed the sub-contractor, and claimed millions in compensation.

There was a draft contract – a sort of framework agreement or ‘protocol’ – which they had been negotiating, which was intended to cover not only the car park project but also other projects they planned to work on together in the future. However, the parties hadn’t signed this off as a formal, final contract when the problems arose. The draft had gone through several versions, which had been passing back and forth between them. However, all the drafts included a clause limiting the sub-contractor’s liability so the sub-contractor argued that this clause applied anyway, even though the final contract hadn’t been signed yet.

The court ruled that there was a legally binding contract between them, and the limitation clause did apply. It said the contractor had made an offer on the terms in a particular letter it had sent to the sub-contractor, which it intended to be legally binding. The letter had instructed the sub-contractor to start work on the project "…in accordance to the Protocol Agreement and Terms and Conditions associated that we are currently working under with yourselves". The sub-contractor had then accepted that offer, either in subsequent emails or letters or by its conduct.

The court referred to that as an ‘interim contract’, which would eventually be superseded by the terms of the protocol once that had been completely finalised. But that did not affect its legally validity in the meantime.

The ruling is yet another example of the risks attached to starting work on a project before all the terms between the parties have been agreed. Tempting though it is to just get on with it, it can come back and bite you unless either a final, formal contract – or, at least, an interim contract – is signed, to give everyone certainty over whether and which terms apply to the project.

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