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These long-term facilities contracts have a horrible habit of soon going to hell in a handcart. This one has. It took just 18 months for the marriage machinery to lead to a 鈥減oisoning of the relationship鈥� and both dump each other. One of the marriage vows in the 10-year utilities contract talked about giving each other lots of hugging and cuddling.

It said: 鈥淭he (employer) and contractor will co-operate with each other in good faith鈥� and鈥� will take all reasonable action as is necessary for the efficient transmission of information and instructions and to enable the employer or, as the case may be, any beneficiary to derive the full benefit of the contract.鈥�

I heard myself mutter 鈥渆lephants鈥�. It鈥檚 an elephant clause鈥� the elephant is difficult to describe in words, but you as sure as hell will recognise it when you see it. Now then, these clauses are found not only in long-term, five, seven, 10 and 30-year service contract deals but have crept into very ordinary building contracts.

The case I will tell you about applies full tilt to our building world but is all about grub. One of the Compass UK companies, Medirest, bid and won the 10-year catering contract for two hospitals in Essex as a Private Finance Initiative. They soon ended up in court and the judge was a tad uncomplimentary about the behaviour of the employer (Mid Essex Hospital Services) because they didn鈥檛 understand what behaviour applies when all this tree-hugging good faith thingamijig is a clause in the contract. Do you?

The judge didn鈥檛 understand what behaviour applies when all this good faith thingamajig is a clause in the contract. do you?

The contract was worth 拢2 million a year. It had monthly interim payments. It also talked about deductions of cash for performance failures. So the customer levied the utilities contractor with lumps of cash discounts. I expect you can see what鈥檚 coming. The contractor and employer quarrelled about these deductions. There was a subtle point; it concerns this good faith concept, this 鈥渕utual trust and co-operation鈥�. The contract was poisoned (the judge鈥檚 word) by the way the employer treated the contractor.

Let鈥檚 have a look at this treatment, this behaviour towards the other person in the relationship. The contract, with its performance points and money deductions, was quite clever. It was invented by the employer鈥檚 commercial director. I think he was quite proud of the machinery. Within a week of beginning the 10-year relationship he had the contract on his desk since he said with some accurate prescience this relationship 鈥渃ould get contractual鈥�. He already wanted to read the riot act.

The cash deductions were, in the beginning, tiny. One month came to only 拢3,570. Not many months later it was a whopping total of 拢716,197! The contractor鈥檚 calculation was a mere 拢37k. The lawyers now come on board. They said, and the eventual court case heard the judge agree, that the employer鈥檚 拢716k claim was absurd. Moreover, when the contractor protested, the employer 鈥渇ailed to respond positively鈥�. The employer had given no details on how the 拢716k was calculated. It turns out that the employer had not checked whether their claims were accurate. The motive for them is put rather politely by the judge鈥� the intention was to encourage a debate (about service) and perhaps a proper engagement on the contractors鈥� part.

The judge concluded that the absurdity of the calculations for payment was a breach of good faith; a poisoning of the relationship

Do you recognise this sort of behaviour? The treatment was all about crucifying the cash flow to persuade the contractor to do what the other fellow wanted. The judge concluded that the absurdity of the calculations for payment was a breach of the requirement of good faith; there was a poisoning of the relationship.

All this went to the heart of the contract. Enough to quit. You may recognise this sort of treatment by one party of the other in our world of building construction but there are numerous occasions when there is an ordinary duty to play fair. And it is a two-way street. It鈥檚 not just the behaviour of the employer or his architect, engineer, surveyor; it鈥檚 the behaviour too of the contractor. Making claims by anyone which are false or even slap-dash is often regarded as par for the course. It鈥檚 not. It鈥檚 bad faith. Watch out for the consequences.
Tony Bingham is a barrister and arbitrator at 3 Paper 黑洞社区s, Temple

Tony Bingham is a barrister and arbitrator at 3 Paper 黑洞社区s, Temple