Question

We have an issue on our latest project, which is being procured under a JCT Standard Building Contract. At one point we were considering a major variation to the works, but we decided not to proceed with this. We emailed this decision to the Contract Administrator. However, apparently due to confusion caused by holidays and communications problems within the CA's organisation, the CA issued an instruction requiring the variation. By the time this was discovered, the Contractor had ordered materials and carried out some abortive work under the instruction. The Contract Administrator has accepted that the email was received by his firm and that he should not have issued the instruction, and has now withdrawn the instruction. However, the Contractor is demanding to be paid for the abortive work and materials. Are we obliged to pay for this?

Answer

This has to be considered at two levels: firstly, as regards the position between the Employer and the Contractor and, secondly, as between the Employer and the Contract Administrator.

The general position is that a CA is an agent of the Employer and can only bind the Employer if he is acting within the scope of his authority. Where a CA is acting in accordance with the instructions of the Employer, he is clearly acting within the scope of his actual authority, and the Employer will be bound by those actions.

However, the Employer can also be bound by actions of the CA that are outside the actual scope of the CA's authority. The CA is said to have ostensible or apparent authority to do things which the Employer has held him out as authorised to do. So, in a typical construction position, the CA will be held out as having authority to issue instructions generally in relation to the works, including those requiring variations, and the Employer will be bound by these instructions, even if a particular variation is instructed against his orders. This would not, of course, be the position if the Employer had notified the Contractor that the CA was not authorised to instruct the particular variation: this would limit the scope of the ostensible authority.

So, to establish a right to payment, the Contractor must show that the CA had authority (actual or ostensible) to instruct the variation, and that the instruction was properly issued within the scope of that authority.

Under a JCT Standard Building Contract the position is clearly set out in clause 3.14: the Contract Administrator may issue instructions requiring a variation. This is a clear statement that the CA has authority to issue such instructions, and as this variation is clearly covered by that clause and was described as being issued under it, you are contractually bound to pay the Contractor for the abortive work and materials.

However, as between yourselves and the CA, the position is that the CA has acted against your clear instructions: he has exceeded his actual authority. The CA has accepted that the email was received and his explanation for the wrongful issue of the instruction is that this was due to internal confusion caused by holidays and communication problems. At the very least, this is negligence on the part of the CA and is no valid excuse. In these circumstances, the CA will be liable to you for the consequences of his actions, and will have to reimburse you in respect of the payment that you are obliged to make to the Contractor for the abortive work and materials.

David Johnson is a partner and head of the construction practice at law firm Boodle Hatfield. He can be reached by email: djohnson@boodlehatfield.com.