1. Court Considers Contractual Interpretation of Derogation Schedules and Adjudicator's Rights to Assess Extensions of Time
A recent High Court judgment addressed the correct contractual interpretation of bespoke schedules of derogations within amended JCT Design and Build contracts, and whether an adjudicator has the power to fix a completion date earlier than that fixed by the Employer's Agent.
Background and Main Issues
Mace Construct Limited ("Mace") were engaged by Baltic Investment Holdings Limited ("Baltic") under an amended JCT Design and Build Contract 2016 dated 5 December 2023 (the "Contract") for the refurbishment of the Baltic Exchange Building, 38 St Mary Axe, London. The Contract incorporated, amongst other documents, an extensive Schedule of Amendments, a Schedule of Derogations and Tender Clarifications. In December 2024 the Employer's Agent granted Mace extensions of time under the Contract totaling seven weeks and five days. Baltic challenged this grant in adjudication and the adjudicator reduced the extension of time to zero days, concluding the original grant was not binding on him. Mace brought CPR Part 8 proceedings seeking seven declarations on issues of contractual interpretation.
The key issues before the Court were: (i) whether the Schedule of Derogations and Tender Clarifications were incorporated into the Contract; (ii) whether those documents were superseded or overridden by the amended JCT standard terms or had to be given full effect as part of the Contract as a whole; (iii) the extent of Mace's design responsibility for derogation items prior to formal instruction; and (iv) whether an adjudicator has the power to fix a completion date earlier than that fixed by the Employer's Agent under clause 2.25 of the Contract.Incorporation of Schedules of Derogations
On incorporation, Baltic conceded that the Schedule of Derogations and Tender Clarifications formed part of the Contract, and the Court granted declarations accordingly. On the central question of contractual interpretation, the Court held that the Schedule of Derogations was not overridden or modified by amended clause 1.3 of the JCT conditions which addressed priority and primacy of the Contract Documents. The Court reasoned that a "derogation", by its nature, contemplates a partial limitation of an obligation, and that effect had to be given to the entirety of the Contract, including the requirement that formal approval and instruction be received before Mace assumed full design responsibility for the listed items. The Court noted that even if a discrepancy existed, the Schedule of Amendments called up and referenced the Schedule of Derogations which would prevail under clause 1.3(iii). Further clause 1.3(iv) expressly gave primacy to the Schedule of Derogations over the Employer's Requirements. The Court granted declarations sought by Mace in respect of the:
- incorporation of the Schedule of Derogations into the Contract; and
- limitation of Mace's design responsibility for items in that schedule until the required procedures for approval of the design solution of the derogations were approved and instructed by Baltic.
Adjudicator's Power to Fix Earlier Completion
Regarding the declaration as to the adjudicator's powers, Mace had submitted that the JCT extension-of-time provisions in clause 2.25 were conducted on a prospective assessment of the delay and therefore were immune from review by an adjudicator or court as they would be reviewing the situation retrospectively. The Court rejected this submission and held that under paragraph 20 of the Scheme for Construction Contracts (the "Scheme"), the adjudicator has power to "open up, revise and review" the Employer's Agent's decision and must "stand in the shoes" of the Employer's Agent, carrying out the prospective assessment that clause 2.25.1 required, however difficult that may be.
Key Takeaways
Parties negotiating or administering construction contracts should note the following:
- Bespoke schedules of derogations and similar documents will, subject to express drafting of hierarchy-of-documents clauses, likely be given full contractual effect;
- Contractors will not be held to have accepted unqualified design responsibility where the contract provides for a staged approval and instruction process that has not been completed; and
- An adjudicator exercising powers under the Scheme has full authority to review and revise extensions of time, including by fixing an earlier completion date than that granted by the Employer's Agent. Interestingly, even where the assessment of entitlement at the time by the Employer's Agent would have been on a prospective basis, this does not prevent an adjudicator later from having regard to retrospective facts in determining what should be a reasonable extension of time.
Mace Construct Ltd v Baltic Investment Holdings Ltd [2026] EWHC 976 (TCC) (28 April 2026)
2. Successful Party's Refusal to Mediate Was Not Unreasonable, Nor Did It Warrant Departure from Usual Costs Treatment
In a recent costs judgment in the High Court, HHJ Kelly assessed whether a successful defendant's refusal to mediate would prevent costs being allocated in the usual manner and whether the defendant may be entitled to indemnity costs. The judgment followed the dismissal of a professional negligence claim by MJS Projects (March) Limited ("Claimant") against RPS Consulting Services Limited ("Defendant") regarding the design and construction of a container park near Felixstowe Port.
Power and Discretion for Award of Costs
Under CPR 44.2(1) and (2), the Court has discretion as to whether costs are payable by one party to another, the amount of those costs and when they are to be paid. The general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, although the Court may make a different order. In exercising that discretion, CPR 44.2(4) requires the Court to have regard to all the circumstances, including the conduct of the parties and whether a party has succeeded on only part of its case if not the whole. CPR 44.2(5) provides that the parties' conduct to be assessed is wide reaching and includes conduct before and during proceedings, the manner in which a party has pursued or defended its case and includes whether a party failed to comply with an order for alternative dispute resolution ("ADR") or unreasonably failed to engage in ADR.
The Court's Treatment of ADR
The judgment reaffirmed the long-standing judicial endorsement of ADR, noting that ADR must always be considered and that cases unsuitable for ADR are rare. The Court also emphasised that a successful party may be deprived of some or all its costs for failure to agree to ADR, with the burden falling on the unsuccessful party to establish why the Court should depart from the usual order. There is no presumption in favour of mediation as the preferred method of ADR.
The non-exhaustive factors identified by the Court of Appeal in Halsey v Milton Keynes General NHS Trust [2004] 1 WLR 3002 (and reiterated by the Judge in the current case) for assessing whether a party has unreasonably refused to engage in ADR are: (i) the nature of the dispute; (ii) the merits of the case; (iii) the extent to which other settlement attempts have been made; (iv) whether the costs of ADR would be disproportionately high; (v) whether any delay in setting up and attending ADR would have been prejudicial; and (vi) whether the ADR had a reasonable prospect of success. Importantly, even an unreasonable failure to engage in ADR does not automatically result in a costs penalty; it is one of several factors to be weighed by the Court when exercising the overall discretion on costs.
Refusal to Mediate
The Claimant had made repeated proposals for mediation, both before and after the issue of proceedings, all of which were declined by the Defendant on various grounds. The Court accepted that the Defendant had not agreed to mediation, but held that to look at that fact alone was to oversimplify the background. The Defendant had consistently raised workmanship issues as the cause of the damage (as opposed to the Defendant's design), and the Claimant had failed to engage substantively with those allegations or to provide its expert report, even on a without prejudice basis. In those circumstances, the Court found it was not unreasonable for the Defendant to require a meaningful response to its case before committing to mediation.
The Court further noted that mediation is not the only, nor the preferred, method of ADR, and the Defendant had proposed alternative forms of settlement discussions throughout, including Calderbank offers and without prejudice meetings. As to the prospects of mediation succeeding, the Court concluded that, given the Claimant's failure to engage with the workmanship defence and the vast distance between the parties' positions, mediation would not have had reasonable prospects of success. Accordingly, the Court held that the Defendant's conduct was not unreasonable and made the usual costs order that the Claimant pay the Defendant's costs.
Indemnity Costs
The Defendant sought indemnity costs (a penal basis of cost assessment that heavily favours the receiving party) in respect of the expert evidence phase of proceedings, relying on the Court's substantial criticism of the Claimant's expert—who had failed properly to apply the Bolam test—used an outdated technical publication, and had carried out additional Finite Element Analysis immediately before trial without informing anyone. The Court reiterated that the test for indemnity costs is whether there is something in the conduct of the action or the circumstances of the case which takes it out of the norm in a way which justifies such an order.
HHJ Kelly acknowledged the serious criticisms of the Claimant's expert, but was "just persuaded" that the answer to this question was no. She accepted that the Claimant's solicitors had put the correct legal test in the expert's instructions, and the expert had set it out correctly in his written report; it was only during cross-examination that the deficiencies became apparent. She further accepted that the Claimant's tactical decision to concentrate on proving negligent design rather than addressing workmanship defects, whilst unsuccessful, did not take its conduct out of the norm. Costs were therefore assessed on the standard basis throughout.
Key Takeaways
This costs judgment offers several practical lessons for parties engaging in construction litigation:
- A refusal to mediate will not automatically attract a costs sanction, particularly where a party has attempted to engage in other forms of ADR and made genuine settlement offers.
- Parties are entitled to require substantive engagement with the issues before committing to mediation.
- A party that refuses to share expert evidence or engage with the opposing case on causation may undermine its own ability to argue that mediation would have succeeded.
- The threshold for indemnity costs remains high; even significant criticism of an expert's evidence and methodology may not be sufficient to take a case out of the norm, particularly where the expert's written instructions and reports appeared correct on their face.
- In construction disputes involving competing expert theories of causation, parties and their legal teams must ensure that their experts engage fully with all issues raised in the defence, including workmanship, and properly apply the relevant legal tests—failing to do so risks losing the case and bearing costs on the standard basis.
MJS Projects (March) Ltd v RPS Consulting Services Ltd [2026] EWHC 884 (TCC) (15 April 2026)
3. Pre-Construction Services Agreement liabilities survive into later building contract
Belong (Construction) Limited ("Belong") engaged Seddon Construction Limited ("Seddon"), under a Pre-Construction Services Agreement dated 27 May 2020 (the "PCSA"), to carry out pre-construction services in connection with a care home development project. The project had been the subject of partially completed works by a previous contractor who had entered insolvency. The parties subsequently executed a JCT Standard Building Contract (with Quantities), 2016 Edition, with a Schedule of Amendments, dated 18 December 2020 (the "Contract"). Seddon applied for an extension of time under the Contract relating to air sealing works instructed by the Contract Administrator (the "CA"). The CA refused this application on the basis that the need to perform such works during the Contract arose from Seddon's failure, in breach of the PCSA, to open up and test the existing air sealing works which had been done by the previous contractor. Seddon denied any such obligation, contending that the open-up-and-testing obligation contained in the PCSA and the Proposed Contract Documents attached thereto did not appear in the final Contract, and that the parties' liabilities under the PCSA were subsumed into the Contract. Seddon referred the dispute to adjudication, and the adjudicator agreed with Seddon's position.
Part 8 Claim
Belong brought a CPR Part 8 claim seeking declarations that: (i) the CA's determination refusing Seddon an extension of time was correct; (ii) the adjudicator's decision on the proper interpretation of the contractual provisions was wrong; (iii) the Final Certificate should be re-opened and the Statement of Final Account amended to remove the extension of time entitlement and associated preliminaries; (iv) Seddon was not entitled to any extension of time in relation to the air sealing works; and (v) Belong was consequently entitled to levy liquidated damages for the relevant period.
The Court's Interpretation of Clause 2 of the PCSA
The Court analysed clause 2 of the PCSA, which governed the duration and effect of the PCSA. Clause 2.1 referred to the parties' "obligations" under the PCSA running from its execution to its termination or execution of the Contract. Clause 2.2 addressed the parties "rights and obligations" in relation to the Works being governed by the PCSA until execution of the Contract, and clause 2.3 provided that upon execution of the Contract, the parties' "rights and liabilities" would be "subsumed into and be subject to" the Contract. The Court held that the difference in wording between "obligations" and "liabilities" was intentional and significant and the sub-clauses were intended to deal with different issues. The Court determined that "liabilities" referred to secondary obligations arising from pre-existing breaches of primary obligations during the PCSA period, rather than primary obligations themselves. Applying that reasoning to clause 2, sub-clauses 2.1 and 2.2 were clear that obligations under the PCSA fell away on execution of the Contract but under sub-clause 2.3 liabilities (e.g. existing breaches under the PCSA) continue under the Contract.
The Effect of Being "Subsumed Into and Subject To" the Contract
The Court considered what it meant for liabilities to be "subsumed into and be subject to" the JCT Contract. It held that "subsumed" did not mean the PCSA ceased to exist as a source of enforceable rights and liabilities. This interpretation was supported by clause 16 of the PCSA, which permitted Belong to commence legal action under the PCSA for up to 12 years from practical completion of the Contract works, a provision which would be meaningless if the PCSA had entirely merged into the Contract. The Court concluded that primary obligations under the PCSA were superseded by the Contract, but rights and liabilities for pre-existing breaches survived, subject to the procedural and substantive terms of the Contract such as dispute resolution procedures, time-bars, or limitations of liability.
Consequences for the Adjudicator's Decision
As a result of this analysis, the Court held that the adjudicator had erred. Insofar as the adjudicator determined that Seddon's obligations (meaning liabilities) under the JCT Contract had superseded, replaced and discharged Seddon's liabilities under the PCSA, the Court respectfully disagreed. The Court also found that the adjudicator applied too narrow an interpretation to clauses 2.28.6.5 and 4.20.3 of the Contract, which barred extensions of time and loss and expense claims arising from the contractor's "error, omission, negligence or default". These provisions were not expressly limited to breaches of the Contract but also extended to non-compliance with legal obligations owed to the employer generally, including under the PCSA.
Relief Granted
The Court declared Belong entitled to the first three declarations sought; namely, that the CA's determination was correct, the adjudicator's decision was wrong, and the Final Certificate should be re-opened. As to the fourth and fifth declarations regarding Seddon's nil entitlement to an extension of time and Belong's entitlement to levy liquidated damages, the Court indicated these should also be granted, but by reference to the first three declarations only, with qualifying words to ensure no unintended wider effect.
Key Takeaways
Participants in the UK construction sector who utilize PCSAs as a precursor to subsequent building contracts should note several key points arising from this judgment:
- Careful drafting distinctions between "obligations" and "liabilities" in transitional clauses will be interpreted purposively, with liabilities understood to encompass secondary obligations for pre-existing breaches.
- Provisions stating that a PCSA will be "subsumed into" a subsequent contract do not necessarily extinguish rights to claim for breaches committed during the PCSA period; such rights may survive and remain enforceable, subject to the terms of the later contract.
- Clauses disentitling a contractor from extensions of time or loss and expense claims arising from "error, omission, negligence or default" may capture breaches of obligations under a PCSA, not merely breaches of the building contract itself.
- Parties should ensure that both their PCSAs and subsequent building contracts clearly articulate the intended treatment of pre-contract liabilities.
- Contractors should be mindful that failures during the pre-construction phase may have consequences that persist into and throughout the main contract works.
Belong (Construction) Ltd v Seddon Construction Ltd [2026] EWHC 1275 (TCC) (28 May 2026)
4. Draft Legislation Banning Retentions under Construction Contracts aid before Parliament
The Commercial Payments Bill was given its initial reading in the House of Lords on 19 May 2026 and has begun its passage through the UK Parliament. The Bill gives effect to some of the key elements of the Government's response to its late payment consultation in March 2026 as reiterated in the Kings Speech in May. The draft bill provides:
- For the imposition of a maximum payment term of 60 days with minimal exemptions.
- Mandating interest on late payments at 8% over the Bank of England Base Rate.
- Prohibiting the deduction or withholding of retention payments under construction contracts and penalties for unauthorised retentions.
- For stronger powers for the Small Business Commissioner and new reporting requirements for large businesses.
- Suppliers the right to a fixed sum where a purchaser raises a dispute late or without sufficient information.
Commercial Payments Bill [HL] – Parliamentary Bills – UK Parliament
Commercial Payments Bill: overview – GOV.UK
Late payment consultation: time to pay up – government response (web version) – GOV.UK
5. CMA Publishes the Findings of its Market Study into the UK Road and Rail Infrastructure Market
The Competition and Markets Authority ("CMA") has completed its market study into the supply of railway and public road infrastructure by the civil engineering sector. The CMA has found that the UK's public road and rail infrastructure procurement market is systematically underperforming with potential efficiency savings of up to £5 billion per year possible. The CMA has made a series of recommendations to reset procurement practice in this sector and has signaled these reforms could extend beyond road and rail to other infrastructure sectors including water, energy, and digital. The UK Government has committed to responding to the CMA's study within 90 days of its publication on 21 May 2026.
Civil engineering market study – GOV.UK
6. Government Consulting on Changes to Approved Document B (Fire Safety Guidance)
The Building Safety Regulator and the Ministry of Housing, Communities & Local Government currently have an open consultation in respect of proposed changes to the statutory guidance Approved Document B (Fire Safety) ("ADB"). The proposed amendments to ADB include:
- Clarification and updates on the guidance in ADB;
- Consolidation of the guidance for designing building work on existing buildings;
- Revision of the rules on combustible materials in external walls and balconies;
- A new requirement for evacuation lifts in residential buildings over 18 metres; and
- Updated guidance on roofs including new provisions for the incorporation of photovoltaic (PV) panels.
The Consultation closes on 1 July 2026.
Review of Approved Document B: Fire safety guidance – GOV.UK
Fire safety: Approved Document B – GOV.UK
7. Building Safety Regulator announces remediation improvement plan
The Building Safety Regulator has introduced a comprehensive remediation improvement plan (the "Plan") to improve the speed of undertaking essential higher risk building remediation works across England. The Plan includes several measures, such as:
- A dedicated multidisciplinary taskforce to address remediation works;
- Reduced caseloads through increased recruitment;
- A flexible approach to approval to allow some appropriate projects to start safely while distinct technical issues continue to be resolved; and
- New guidance for external remediation and further supporting information and resources to be made available in coming months.
8. UK Green Building Council Launches New Whole Life Carbon Framework
The UK Green Building Council has launched a new Whole Life Carbon Framework ("WLCF") to reduce and manage carbon emissions in the built environment and support net zero outcomes. The WLCF provides principles to help organisations minimise whole life carbon and emissions and aims to support low carbon decision making across a building's life cycle from design through to operation and finally demolition and disposal. The WLCF also aims to improve accountability through improved carbon assessment and disclosure across projects and property portfolios.
New framework to help reduce and manage carbon emissions launched by UKGBC | UKGBC
