Part 1 Task Description
Caveats
Whilst every effort has been taken to make the technical aspects of the problem at least vaguely plausible, you may believe as a result of your own personal expertise and knowledge that all or some of the problem is unrealistic. Such beliefs are irrelevant to this assignment.
There are some references to FIDIC standard form contracts. Detailed knowledge of the working of the FIDIC contracts is not expected as you are mostly required to demonstrated knowledge and understanding of fundamental contract law aspects discussed in the module. Owing to issues with securing access to the most recent FIDIC contracts, older contract forms are used.
In your answer, please entirely disregard any impact which the Housing Grants Construction and Regeneration Act 1996 (as amended) could have on matters in issue.
The scenario has been located in a real part of England, with real physical and legal characteristics, but it is in all other respects fictious.
Background
The Lune Forest Wind Farm is in the North of England, near Appleby-in- Westmorland. The Developer, Grun Power plc (“Grun Power”), faced enormous challenges in securing planning consent for the development, because it is located in a designated Area of Outstanding Natural Beauty with extremely restrictive planning policies. Grun Power considered these challenges worth facing because the chosen turbine locations on Mickle Fell and Backstone Edge had average annual wind speeds of over 10 m/s, some of the most powerful and consistent in England and ideal for the competitive generation of electricity.
The planning process was very costly for Grun Power, requiring extensive consultation with local people and the preparation of numerous expert reports relating to wind patterns, environmental impact etc. In addition, Grun Power had to agree to extensive investment into local infrastructure as a condition of the eventual granting of planning approvals. Owing to these factors, Grun Power did not have enough money to proceed with the whole Lune Forest Wind Farm in one go and instead decided to build out the Mickle Fell Scheme first, with the intention to follow on with the Backstone Edge Scheme two years later, before the planning permission expired (the Mickle Fell and Backstone Edge schemes each had their own specific planning permission).
The planning permissions were granted on 6 March 2020. They were on the basis that each turbine would consist of a rotor with a diameter of 80 metres comprising 3 glass fibre reinforced resin blades, each around 39 metres long, all mounted on a 78 metre high tubular steel tower. The rated generator output for each turbine would be 2,000 kW. Initial ground investigations, required for planning permission purposes, indicated that piled foundations would not be necessary, hence each foundation would comprise simply an anchor cage cast into reinforced concrete, set on a thin bed of concrete blinding.
Grun Power contracted with Ventus Rotors Ltd (“Ventus Rotors”) to manufacture, supply and install the three Mickle Fell turbines. The Balance of Plant (“BoP”) contractor for Mickle Fell was Energy Contracting Ltd (“Energy Contracting”), who undertook to complete both the civils (access roads, crane pads, cable trenches, turbine foundation etc) and the electricals (cable installation, substation, grid connection etc). The contract was a largely unamended 2017 FIDIC Red Book, and the Engineer appointed by Grun Power was Elson Carter of Construction Managers Ltd.
It was a term of the BoP contract that Energy Contracting should, to the extent reasonably possible, utilise local sub-contractors. Cumbrian Ground Structures Ltd (“Cumbrian”) won the subcontract for installation of the access roads, cable trenches and foundations for the turbines.
The Mickle Fell Scheme started on site in late November 2020, following detailed ground investigations which confirmed the initial view that gravity foundations would be sufficient for the turbines. The start was not delayed by covid restrictions as the UK government allowed construction in England to continue despite the pandemic. The Mickle Fell Scheme was taken over by Grun Power on 1 April 2022.
Energy Contracting also won the Backstone Edge BoP contract. It was executed in June 2022, subject to a condition that Grun Power could delay commencement of the works by up to one year from the date of execution. BoP works commenced in February 2023. They were expected to be complete by 18 October 2023, but owing to problems with an access road and the detailing of the turbine foundations, the BoP plant works were only taken over by Grun Power on 24 November 2023, some 37 days late.
Energy Contracting initially planned to carry out the Backstone Edge BoP in exactly the same way they had completed the Mickle Fell project, using Cumbrian for installation of the access roads, cable trenches and foundations for the turbines. However, at the time the Backstone Edge works had to be started, Cumbrian were too busy to commit to that whole package and were only able to take on the access road element. The rest of that package was lined up for a small local firm called Westmorland Excavations who started them, but the works were ultimately completed by Cumbrian.
The legal consequences of this late completion and how it came to pass are hotly contested by the various parties.
Claims
It is now December 2023 and the final account is being negotiated. You have just been hired by Energy Contracting to help them sort it all out. You have been briefed on the background as above. You have also been provided with some edited highlights from the documentation (see Appendix A below).
Grun Power’s position is that Energy Contracting are entitled to the original contract sum less 37 days of delay damages.
Energy Contracting are keen to establish their probable legal position. There is uncertainty as to what obligations they owe Grun Power regarding the turbine foundations, and in particular whether they were contracted to deliver foundations compatible with the new design of turbine tower, and whether they bear ground risk for the failure of the first turbine foundation.
In relation to Westmorland Excavations, there is uncertainty as to the basis of the relationship, quite what Westmorland Excavations were obliged to do, who was legally at fault in relation to the termination of their site activities, and what damages might be due or payable.
APPENDIX A
3 February 2023 extract from email from Elson Carter (Construction Managers Ltd) to Sam Powers (Energy Contracting)
We really need to get moving on Backstone Edge. The planning permission expires on 6 March, so we need you to at least make a start on the access road well before then.
Accordingly, please find attached a Notice of Commencement. The notice is issued pursuant to clause 8.1 of the contract (dated 28 June 2022) and served in accordance with clause 1.3. Grun Power would be entitled to give only 14 days notice, but the attached confirms the Commencement Date as Monday 20 February 2023.
Given the contract period of 240 days, that gives a completion date of 18 October 2023. As you know, daily delay damages are specified in the Appendix at 1.5% of the contract price (£800,000), with a 75% total upper limit.
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Monday 13 February 2023 extract from email from Sam Powers (Energy Contracting) to Elson Carter (Construction Managers Ltd)
Thanks for your email. We had expected more notice of the commencement of the Backstone Edge phase. We will of course, though, do our best to accommodate your instructions and will urgently seek to mobilise our sub-contractors.
Please confirm that your client’s BoP requirements for Backstone Edge remain as agreed in Specification BoP-BSE v1.3.4 28/6/22 to the FIDIC Red Book contract, which were based on the Mickle Fell BoP contract for the three VRL2000W78M_11 turbines. Please provide any additional ground investigation reports carried out on Backstone Edge; we have the reports for Mickle Fell. Demonstrate knowledge and understanding of key features of the English Legal System, and the sources of law relevant to the construction process
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Monday 13 February 2023 extract from email from Francis Lime (Cumbrian) to Sam Powers (Energy Contracting)
In short, though we are delighted to receive your statement of interest, we are not in a position to take on the full civils BoP as we did on Mickle Fell. In recognition of the urgency of your client’s needs, however, we are able to re-schedule to take on the construction of the access road to the Backstone Edge site. As before, we will not take it on a lump sum (must be remeasurement), nor will we take any ground risk. We will write separately to confirm our terms, but these will not differ greatly from the Mickle Fell scheme and, subject to agreeing terms, we can make a start next Monday. Given that the access road is around 1 mile long, we would expect to have it completed within 16 weeks of commencement, say 12 June 2023.
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10 March 2023 extract from letter from Construction Managers Ltd to Energy Contracting
To keep you notified of relevant matters, we confirm that Ventus Rotors have provided us with their manufacture schedule for the two VRL2000W78M_14 turbines. They undertake to be ready to deliver the towers and turbines as from 18 October 2023, in accordance with your own completion dates. We enclose the 2023 edition of the Ventus Rotors Technical Brochure for your information.
Our client is not proposing to carry out further ground investigations. Our client has no objections to you carrying out further investigations if you consider these necessary.
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Tuesday 4 April 2023, extract from internal memo from Alex Harbon (Energy Contracting) to Sam Powers (Energy Contracting)
As suspected, there is just no more availability in the local market. It’s Westmorland Excavations or nothing. Apparently they are well known for taking a bonkers contractual approach, but their work is generally pretty good.
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Wednesday 19 April 2023, extract from letter from Energy Contracting to Westmorland Excavations Ltd
Following on from our meeting at the Lune Forest Wind Farm yesterday, we enclose relevant contract documentation:
- Extracts from Specification BoP-BSE v1.3.4 230/6/15 including:
- Crane pad details
- Turbine Foundation details
- Ground investigation reports for adjacent Mickle Fell site.
- Ventus Rotors Technical Brochures for 2020 and 2023.
- 2011 FIDIC Subcontract conditions for building and engineering works designed by the employer.
We will offer on free issue the two anchor cages compatible with the VRL2000W78M_11 turbine towers installed at Mickle Fell. As explained, it was cheaper for us to procure all five cages at once even factoring in the cost of dry storage until these two cages were needed. On that basis, the price for the Works we are offering is £180,000.
We can give access to site once the roadway is fully completed which is due to be on 12 June. We therefore require a subcontract completion period of 16 weeks (112 days) to ensure the overall BoP contract is delivered no later than 18 October.
The BoP contract has significant delay damages associated with it, so it is imperative that we finalise these items as a matter of urgency.
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Monday 1 May 2023, extract from letter from Westmorland Excavations Ltd to Energy Contracting
We have been in business for over 35 years, and have always preferred to do our works on more of a gentleman’s agreement. We find it much simpler. We stand by the quality of our work and though we have not built wind farm foundations before we have long experience of complex foundation casting. On that basis we suggest that the appropriate terms are:
- SCOPE: As per extracts from BoP-BSE v1.3.4 28/6/22 attached to your letter dated 19 April assuming TWO number free issue cages, to produce foundations for the intended Ventus Rotor Turbines, plus crane pads.
- TIME: Completion on 2 October 2023 or before, unless period requires extension owing to matters beyond our control.
- PRICE: £220,000 payable in four equal monthly instalments, in arrears from the start date, subject to a 5% retention, to be released within 12 months of completion.
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Thursday 11 May 2023, extract from letter from Energy Contracting to Westmorland Excavations Ltd
… and we can confirm that we can move on price, but only to £200,000.
We are surprised at your suggested contractual approach. We are on FIDIC up the line, and it therefore makes sense for us to have all our sub contractors on FIDIC down the line too. Once this is resolved, we can finalise. Please confirm by return.
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Friday 9 June 2023, extract from email letter from Les Crane (Westmorland Excavations Ltd) to Sam Powers (Energy Contracting)
Sorry you’ve had to chase us so much, Sam. Just finishing up on another job, and it’s also been such good weather I’ve been up in the hills as much as I can J. I do have your letter of 11 May. We are all set for starting on Monday. £200k is not what we wanted but we can work with it. As for the other stuff, I can’t see the benefit. We’ll see you on Monday.
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Wednesday 19 July 2023, extract from email letter from Les Crane (Westmorland Excavations Ltd) to Sam Powers (Energy Contracting)
Thanks for settling our first instalment payment so promptly. £47.5k as agreed. Not sure why your QS hassled us for a “Sub Contract Progress Report” – I’d have thought progress was pretty clear – we’ve got the crane pads in and are starting with the foundation excavations “proper”! All on track so far.
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Monday 24 July 2023 extract from email from Francis Lime (Cumbrian) to Sam Powers (Energy Contracting)
Following the emergency site meeting on Friday, we have now carried out a further examination of the Backstone Edge access road. There is qualified good news. The only section of the road which appears problematic is the section which collapsed when Westmorland were trying to get their larger excavator up to the site on Thursday. As you know, we were able to recover the excavator by dragging it back down the road a little way.
The ground where the collapse occurred is affected by the stream which passes under it. We can shore this up effectively, but the road up to the site will not be open until this time next week.
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Tuesday 25 July 2023, extract from letter from Energy Contracting to Construction Managers Ltd
… this problem with the access road will delay completion by one week, and we accordingly notify you of this in accordance with clauses 8.4 and 20.1 of our contract…
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Wednesday 16 August 2023 extract from letter from Construction Managers Ltd to Energy ContractingPlease provide by return your proposals for resolving the issues which Ventus Rotors identified on site this morning, on the occasion of the initial inspection of the first turbine foundation, namely:
- The anchor cage which has been cast is not compatible with the turbine tower. It is the old model.
- The foundation is not level. It appears already to be subject to rotational movement, apparently caused by inadequate ground conditions.
Our client’s position is that these are both your risk items on the basis of information supplied to you.
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Thursday 17 August 2023, extract from letter from Energy Contracting to Construction Managers Ltd
Whilst we will work with you in seeking to minimise the impact of these issues, we consider that both aspects – the incompatibility of the anchor cages, and the ground condition problem – are your client’s risk items, and we accordingly notify you of this in accordance with clauses 8.4 and 20.1 of our contract that completion will be delayed. At this stage we can only estimate, but it looks likely to be by round one calendar month.
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Wednesday 30 August 2023, extract from letter from Energy Contracting to Westmorland Excavations Ltd
Owing to the swingeing nature of delay damages on this contract, it is in the interest of the entire supply chain for the current problems to be resolved as soon as possible. Without prejudice to any final liability for relevant costs and consequences, we have therefore taken a number of investigatory steps, and we propose a way forward.
On discovering the problem with the anchor cages we, on a without prejudice basis, ordered the manufacture of two compliant cages (£5,000) and these are now ready.
We have had emergency and detailed ground investigations carried out on a without prejudice basis (at a cost of £20,000). These confirm that the site of the first foundation was subject to a freak geological weakness. Since the planning permission requires the turbine to be located in that precise spot, the only viable solution is to bed the (new style) anchor cage on a CFA piled foundation. As demonstrated by the attached documents, we have put these works out to competitive tender and have obtained a price of £80,000 for this work to be carried out over the course of the next week, subject to Westmorland Excavations breaking out the existing foundations by Monday morning.
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Thursday 31 August 2023, from email from Les Crane (Westmorland Excavations Ltd) to Sam Powers (Energy Contracting)
We do want to be cooperative, Sam. But from our perspective, we are already taking a hit. I haven’t chased you for our second instalment because of the problems you are having, but it’s about three weeks overdue. Even leaving aside current problems, all of the excavation is done, all of the crane pads are in, the concrete blinding for the turbine foundations is in. That’s £100,000 of the contract done and dusted, and you’ve only paid us £47,500. All we are contracted to do is to follow your instructions, which we did. It’s not our fault if you gave us the wrong cages, or didn’t look at the ground conditions properly. And now you want us to break out this concrete at top speed, but what about payment? I can get it broken out by Monday, but I need you to confirm that you will pay the cost. It will be £10,000 to do this.
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Thursday 31 August 2023, extract from email from Energy Contracting to Westmorland Excavations Ltd
Without prejudice to any obligations which we owe Grun Power plc, it is our position that Westmorland Excavations Limited had an implied obligation to produce foundations which were fit for the purpose of linking with VRL2000W78M_14 turbines. You are in breach of those obligations by installing incorrect cages, and by not establishing the nature of the ground conditions. In order to meet these contractual obligations it is necessary for Westmorland to carry out remedial works, at their own cost, including the emergency demolition of the defective anchor cage.
Accordingly, we hereby notify you that unless you make a start on these preparatory remedial works by no later than 9 am on Friday 1 September, we will have no option but to have this work carried out by alternative contractors.
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Thursday 31 August 2023, manuscript telephone attendance note taken by Sam Powers (Energy Contracting) of call with Francis Lime (Cumbrian)
FL confirmed CUMBRIAN could do demolition from tomorrow if WEL didn’t. £15k for completion by Monday am. FL had considered docs. CUMBRIAN would take balance of WEL work if necessary. £175k. No fixed completion date, but reasonable endeavours to complete as soon as possible.
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Friday 1 September 2023, from email from Les Crane (Westmorland Excavations Ltd) to Sam Powers (Energy Contracting)
We arrived at site this morning to carry on with installation of the second foundation, using the new cages, but from 10 am the site has been crawling with other operatives from Cumbrian Ground Services. They are braying out the concrete on foundation one, but they are also just getting in the way of my people and apparently trying to set out foundation two as well. It seems to me that you have decided to take this job away from us unilaterally. I will accept your wrongful termination of our contract. I will be in touch about compensation shortly.
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Friday 24 November 2023 extract from letter from Construction Managers Ltd Energy Contracting
Our client is relieved that the BoP works were finally released to them today. This is some 37 days later than required under the contract and delay damages will be payable. Demonstrate knowledge and understanding of key features of the English Legal System, and the sources of law relevant to the construction process
The rate of delay damages was agreed by you at 1.5% of the contract sum, which works out at £12,000 per day, or £444,000 for 37 days. Despite agreeing the rate back in June 2022 you queried the basis of calculation. We did some calculations at the time based on publicly available figures. We attach extracts from the relevant file note. You will see that we scaled back from 1.59% to 1.5%.
https://www.renewablesfirst.co.uk/renewable-energy-technologies/windpower/windpower-learning-centre/how-much-wind-energy-income-would-a-wind-turbine-provide/
Once you have completed Part 1, please sit back and reflect on what you have achieved. Please look at the assessment criteria and assess your own performance as against those criteria, and give yourself a mark out of 100 for the task.
Likewise, please provide feedback on what you thought about the assessment. What were its shortcomings, what were its strengths, what would have been better, etc.
Please include this self and assignment assessment in your submitted work, preferably at the end of your document.
There are no marks associated with this part of the Assignment, but you are strongly encouraged to do it, as the process of self analysis speeds up the learning process.
