£160 million public contract ‘unworkable’

Posted: 22nd January 2016

RCJBrevity is usually to be preferred when drafting commercial agreements and an excess of verbosity can often be the source of intractable disputes. That was certainly so in the case of a £160 million public contract which contained a string of unworkable clauses despite running to several lever arch files.

A telecommunications company signed the 10-year contract with a local authority and other public service providers to install and manage IT, human resources, document management and other back office systems. The agreement was of great importance to the public in terms of employment, health, transport, communications and public safety across an entire county.

Noting the contract’s impractical length, the High Court observed that all parties had found it very hard to work with. It included a web of price mechanisms and key performance indicators, many of which were not fit for purpose. Imprecision in its drafting resulted in a number of internal contradictions and its governance and oversight provisions had proved inadequate when things started to go wrong.

The contract had been running for just over two years when the council asserted a right to cancel it with immediate effect. It launched High Court proceedings, seeking a declaration to that effect. The company accepted that it had encountered major difficulties in performing its obligations but argued that the fault was not all one way and that it could hardly have done more to achieve compliance.

Ruling in the council’s favour, the Court found that the company was under an immediate duty to resolve backlogs in work schedules and enjoyed no contractual protection from the consequences if it failed to do so. In those circumstances, the council was entitled to terminate the contract forthwith.

Noting that it was the public who were primarily affected by the shortcomings in the drafting of the contract and the failings in performance under it, the Court urged that all public authorities should take careful note of its ruling with a view to avoiding similar situations in the future.