Meaning of “construction operations”
The rights and obligations imposed by Part II of the Housing Grants, Construction and Regeneration Act 1996 (Construction Act) apply only to construction contracts which are in turn defined by reference to agreements for the carrying out of “construction operations”.
The central issue in the following case was whether the works were excluded “construction operations” by virtue of section 105 (2) (c) (i) of the Construction Act.
Section 105 (2) (c)
Section 105 (1) provides that “construction operations means, subject as follows, operations of the following descriptions” which it then describes in a long list in sections105 (1) (a) to (f).
Section 105 (2) sets out which operations are excluded from the Construction Act. These operations are defined in section 105 (2) (a) to (e). Of relevance is section 105 (2) (c) which excludes the following operation:
“assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery, on a site where the primary activity is -
(i) nuclear processing, power generation or water or effluent treatment ...”
In this case it was not disputed that the enabling works and the civil works at the two power stations were construction operations within the definition of section 105 (1) (a) and (b) (“construction, demolition or dismantling of buildings, structures or any works”) and also (e) (“operations which form an integral part of, or are preparatory to, or are for rendering complete, …earth moving, excavation, tunnelling and boring, laying foundations, erection, maintenance …and the provision of roadways and other access works”).
It was also not disputed that the relevant works were being carried out on a site where the primary activity was power generation.
The issue was whether the enabling works and the civils works fell outside the Construction Act by virtue of the exception in section 105 (2) (c) as “assembly, installation or demolition of plant or machinery, or erection or demolition of steelwork for the purposes of supporting or providing access to plant or machinery.”
North Midland Construction Plc v AE&E Lentjes  EWHC 1371 (TCC)
Lentjes was the turnkey contractor for the construction of flue gas desulphurisation (FGD) units to be installed at two coal fired power stations at Fiddler’s Ferry, Cheshire and Ferrybridge, West Yorkshire. It entered into four contracts for enabling works and civil works for each power station with the sub-contractor, North Midland Construction.
The enabling works and civil works were necessary before the FGD units and other parts of the system could be installed or completed.
The enabling works required the construction of temporary roads, temporary services, construction of foundations for site offices and demolition of buildings.
The civil works included the construction of foundations for components of the plant, such as tanks, booster fans, the gas heater, the absorbers, bleed pump drain pits, pump house, dewatering and waste water treatment buildings, limestone and gypsum silos and an underground limestone unloading structure.
A dispute arose on the final account and the sub-contractor sought a declaration that the enabling and civils works did not fall within the exception of section 105 (c) and were therefore construction operations entitling them to adjudicate.
The contractor argued that the enabling works and the civils works were all necessary or effective parts of the FGD process and so were caught by the exception in section 105 (c).
A narrow or broad approach?
The judge reviewed the previous authorities on the application of section 105 (2 (c).
Although each case was necessarily determined by its own particular facts, the judge noted that there was a difference of approach in the decisions.
In particular, the judge noted that in Palmers v ABB Power Construction Ltd the scope of section 105 (2) (c) was construed narrowly whereas in ABB Power Construction Ltd v Norwest Holst Engineering it was construed broadly.
The difference of approach was summarised in Keating on Construction Contracts (8th edition) at paragraph 17-009 and footnote 52 when discussing section 105 (2):
“This can give rise to difficulty where the main contractor’s work may fall within one of the exclusions in section 105 (2) of the Act whereas a sub-contractor, being only concerned with a small part of the overall works, may be carrying out a construction operation within section 105 (1) of the Act: compare the approach in Palmers v ABB Power Construction with the approach in ABB Power Construction Ltd v Norwest Holst Engineering. In the first case, HHJ Thornton QC held that it was possible for a contractor’s operations to fall outside the Act but for his sub-contractor’s operations to fall within the Act. In the second, HHJ Lloyd QC held that the object of section 105 (2) (a)-(d) is ‘that all the construction operations necessary to achieve the aims or purposes of the owner or of the principal contractors (as described therein) would be exempt, including sub-contractors.’”
The judge also noted that both judges in Palmers v ABB Power Construction and ABB Power Construction Ltd v Norwest Holst Engineering relied on similar background material in relation to the industry lobbying that had given rise to the exceptions in the Construction Act.
If a broad approach was taken to the definition of operations excluded under section 105 (2) then any works that related to the assembly or installation of plant or machinery for a power plant would fall under the exclusion in section 105(2) and the dispute in this case would be outside the scope of the Construction Act.
If, however, a narrow approach was taken, as the enabling works and the civils works were not directly related to the assembly or installation of plant, the Construction Act would apply.
The narrow approach
Ramsey J considered that section 105 (1) contained a very wide definition of construction operations and that section 105 (2) had been drafted to contain specific exclusions. Accordingly the intention must have been to exclude a specific operation from the more general description. In those circumstances the judge considered that the narrow approach to the construction of section 105 (2) was more appropriate.
In the judge’s view, the narrow construction would give effect to the Construction Act by applying it only in cases where the work was assembly or installation of plant or machinery. On the other hand, the broad construction would deprive the Construction Act of effect in many cases and would lead to a strained construction of the words “assembly, installation … of plant or machinery”.
Ramsey J also considered that the Parliamentary material of the debates when the Construction Act was being drafted supported the narrow approach to the interpretation of section 105(2) (c).
If Parliament’s intention had been to exclude all construction operations on a site where the primary activity was power generation, then that could have been easily done. Equally if it had been intended to exclude all preparatory activities, then a sub-section similar to section 105 (1) (e) could have been added.
Applying the principles: the court’s decision
Applying this narrow approach, Ramsey J ruled that the enabling works and civil works could not be described as the “assembly, installation or demolition of plant or machinery” and accordingly were not excluded operations under section 105 (2) (c).
Ramsey J noted that there would always be certain aspects of every contract which at the boundaries might either be argued to be construction operations within the ambit of the Construction Act or within one of the excluded operations and outside the Construction Act. He did not consider that it was the intention of the Construction Act for there to be a minute analysis to find an item which was a construction operation or which was within one of the exceptions when a commonsense analysis would provide a straightforward answer.
Even though in this case there were grey areas, particularly in relation to the civil works, he concluded that the works under the civil works contract and the enabling works contract were “construction operations” and would not be excluded from the operation of the Construction Act as assembly or installation of plant or machinery on a power generation site.
The decision is to be welcomed as it provides clarity as to the meaning of section 105 (2) (c) and it resolves the difficulty that existed due to the inconsistent approaches taken in earlier cases.
Contract drafters should always consider whether the Construction Act will apply to any dispute and write appropriate provisions into the contract rather than rely on the provisions in the Construction Act itself to determine whether the provisions of the Act will apply or not.
View: North Midland Construction Plc v A E & E Lentjes UK Ltd  EWHC 1371 (TCC)