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Clause Text

Why is this clause problematic?

The clause contains two distinct elements:

1. The Main Contractor decides how inconsistencies or ambiguities are resolved.
2. That resolution gives the Sub-Contractor no entitlement to additional payment or compensation.

A court or adjudicator may uphold the first element as an agreed contractual mechanism, particularly where the Main Contractor is selecting between two genuinely plausible interpretations. The second element is more vulnerable, especially where the Main Contractor's decision effectively changes the scope, imposes additional work, or overrides an express valuation or variation provision.

What were the cost consequences?

Assuming England and Wales law, the clause is intended to transfer most of the financial risk of inconsistencies and ambiguities to the Sub-Contractor.

Its practical cost consequences are likely to be:

• No extra payment for resolving discrepancies. If the Main Contractor selects one of two possible interpretations, the Sub-Contractor may have to perform the more expensive interpretation for the original Sub-Contract Sum.
• Pricing risk sits with the Sub-Contractor. The Sub-Contractor may be expected to allow in its tender for document gaps, coordination errors, differing quantities, access requirements, sequencing difficulties and specification conflicts.
• Reduced prospects of variation recovery. The Main Contractor may argue that work arising from an ambiguity is not a variation but merely part of the original scope as determined under the clause.
• No compensation for consequential cost. The wording may be relied upon to resist claims for labour, materials, plant, preliminaries, disruption, prolongation, loss of productivity and subcontractor charges resulting from the Main Contractor's interpretation.
• Potential cash-flow pressure. The Sub-Contractor may have to carry out disputed work first and pursue payment through the contractual payment process or adjudication afterwards.
• Higher tender prices and contingencies. A prudent Sub-Contractor may price an ambiguity allowance, increase risk contingency, qualify its tender, or exclude identified discrepancies.
• Greater administrative cost. The clause makes early notices, RFIs, tender clarifications, drawing reviews and contemporaneous records more important.
• Dispute costs. The parties may incur adjudication, expert and legal costs arguing whether there was a genuine ambiguity or whether the Main Contractor's direction was actually a variation.

However, the clause should not automatically deprive the Sub-Contractor of payment where the Main Contractor's decision:

• adds work not reasonably contained in the original documents;
• overrides a clear contractual requirement;
• conflicts with an order-of-precedence clause;
• follows a post-contract design change;
• results from the Main Contractor's breach, delay or late information; or
• amounts in substance to a variation.

The key financial distinction is therefore:

If the Main Contractor is merely choosing between two genuine interpretations of the original scope, the Sub-Contractor may bear the additional cost. If the Main Contractor is changing or enlarging the scope, the work may remain separately payable despite the clause.

The clause may also affect recovery of adjudication or litigation costs only indirectly. In statutory adjudication, each party normally bears its own legal costs unless the parties validly agree otherwise after the dispute has arisen. The clause itself does not appear to be an express costs-shifting provision.

For tendering purposes, the safest approach is to identify every known ambiguity expressly, state the pricing assumption adopted, and provide that any departure from that assumption is a variation.

Amendment to Standard Form

Not applicable.

Associated Clauses

Note applicable.

Relevant Case Reference

None come immediately to mind but since the clause appears in the Main Contractor’s written standard terms, the Unfair Contract Terms Act 1977 may be relevant. In particular, section 3 can subject a term to the statutory reasonableness test where one party deals on the other’s written standard terms and the term permits that party to:

• render contractual performance substantially different from what was reasonably expected; or
• render no performance at all.

A clause excluding or restricting liability for breach may also require scrutiny under UCTA. Relevant considerations include bargaining strength, negotiation, insurance, awareness of the term, and whether the risk could realistically have been priced.

UCTA is less likely to intervene where the clause was individually negotiated between commercially sophisticated parties, although the question remains fact-sensitive.

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