‘Too many potholes’

Posted: 6th February 2013

PotholeA road maintenance company that argued its profits on a major public contract were swallowed up by a substantially larger number of potholes than could reasonably have been predicted is not entitled to an additional payment from the Department of Transport. The Technology and Construction Court ruled that the contractor’s losses were incurred as a result of ordinary commercial risks and that an arbitrator who dismissed the company’s claim had made no error of law.

The contractor had taken on a five-year contract to maintain trunk roads in East Anglia. It was argued that the much higher than projected number of potholes during the contract period amounted to a ‘compensation event’ within the meaning of the contract and entitled the contractor to additional payments.

Upholding the arbitrator’s decision, the court noted that the contractor had taken the commercial risk that the road defects it was obliged to address would be greater in number and in terms of expense than the contract lump sum had made allowance for. On the upside, there was also the possibility that a lower than predicted incidence of potholes would result in the contractor making a higher than anticipated level of profit. The contractor’s interpretation of the contract, whilst maintaining that chance of enhanced profit, would have removed any commercial risk from the performance of its obligations and could be viewed as a ‘win-win’ situation.

The contractor had argued that the arbitrator had failed to understand the issues or determine its claim as formulated but the court rejected arguments that the arbitrator’s decision was infected by a ‘serious irregularity’. The reasonableness of his decision was ‘not open to serious doubt’.