The MF/1 contract for the supply and installation of electrical, electronic or mechanical plant has been around for some time.
It was first published back in 1988 and we are currently on a fifth version, which came out in 2010 to take account of changes to the Construction Act. So it is well established in the industry and quite user friendly. For example, there is additional drafting contained at the back of the contract that can be incorporated, depending on what type of project you are doing. There is also a whole raft of ancillary documents. These include template forms of sub- contract, tender, parent company guarantee and even a defects liability demand guarantee. But there are a few quirks to watch out for, especially if you are the purchaser (ie, the employer).
One such quirk relates to liquidated damages. In contrast to most building contracts in which LDs are expressed as a sum of money payable or deductible per week, under MF/1 they are expressed as a percentage of the contract value. This would be fine if the contract was referring to a percentage of the entire contract value because this would be easy to calculate. But MF/1 expresses LDs as a percentage of the contract value of the part of the works that cannot be put to its intended use because of the failure by the contractor to complete on time. A number of problems arise from this. For example, how easy is it to put a contract value on the part of the works that cannot be put to its intended use? Can that part of the works be easily identified if it is not a defined section with its own specific rate of LDs? A number of cases suggest that the courts are unwilling to apply LDs to parts of the works unless they are specified as sections. So, as drafted, LDs are not much good if you are a purchaser under MF/1.
The simple solution is to jettison the “percentage of parts of the works” approach and instead agree an amount of LDs in the time-honoured fashion, either for specific sections (if relevant) or for the entire works. This is something I have seen agreed before on several MF/1 based projects.
There are also some limitations on liability of which purchasers should be aware. Take, for example, indirect and consequential losses (eg, loss of profit, loss of use and loss of production). MF/1 states, at clause 44.2, that neither the purchaser nor the contractor can claim for any indirect or consequential losses against the other party except as stated in the contract. So that safeguards our purchaser’s LDs as discussed above. It also safeguards all 15 of the Contractor’s “allowance for profit claims” as stated in clause 41.2 of the contract.
But, if we examine the situation on termination, an imbalance arises between the rights of the two main parties. If the contractor terminates because of a purchaser default (most likely non-payment of fees) then the contractor is entitled to, among other things, a loss of profit claim. This is as stated in the MF/1 (at clause 51.3), so the right stands. But if the purchaser terminates because of a contractor default (eg, abandonment of the project), MF/1 makes no mention of any purchaser rights to loss of profit on termination. Therefore, the all-encompassing nature of clause 44.2 means that the purchaser is not entitled to any loss of profit. As a result, purchasers usually want me to delete clause 44.2. Contractors are perfectly happy to keep it in.
MF/1 could also do with a bit more of a spring clean. Although the payment terms are Construction Act compliant, the contract makes no reference to the 2010 Bribery Act. Nor are there any provisions requiring contractors to hold PI or prohibiting them from using deleterious materials.
