How far does a PFI Road Maintenance Contract Travel?

On 22nd February 2018 the Court of Appeal handed down judgment in Amey Birmingham Highways Ltd v.  Birmingham City Council (BCC) [2018] EWCA Civ 264, reports Colin Ricciardiello.

Birmingham City Council (“BCC”) appealed against a High Court decision – [2016] EWHC 2191 – which granted relief in Amey’s favour when it found that an adjudicator’s decision (made in an adjudication launched by BCC) had wrongly interpreted the contract and accordingly was not binding on either party.

The Court of Appeal unanimously found in BCC’s favour, allowed its appeal and effectively restored the adjudicator’s decision.

The contract was dated 6th May 2010 under which Amey were engaged to maintain and manage the road network in Birmingham for 25 years.  As with many long term PFI contracts, the contract was hefty – approximately 5,190 pages excluding discs, plans and other incorporated documents.

In 2008 BCC supplied Amey with a database inventory detailing the road network. It contained 6 tables of data.  Both parties intended that that database was the initial version of the inventory model.

The performance of the contract started in June 2010 and all went well for the first 3 ½ years, and completion certificates 1-5 were issued.  However, in February 2014 BCC “… noticed a most remarkable thing” (paragraph 29 of the CA’s judgment).  Namely, some parts of the roads and footpaths were deliberately being left unrepaired as, on a literal reading of the contract, and absent change notices from BCC, Amey claimed it was under no duty to maintain and repair because those roads were not detailed in 2 of the original 6 tables of data, and Amey contended that it was not required to update the original database to include these.

The three issues determined by the Court of Appeal in BCC’s favour were that:-

(i)      Amey’s obligations to provide services to a specified contractual performance standard extended to the whole of the road network and not just to the ones which appeared in the database inventory provided in its original form in 2008;

(ii)    Amey were obliged to update the database so it accurately reflected the actual extent of the network;

(iii)   The Certificates of Completion for milestone 6 to 9 were set aside, or alternatively opened up and revised so as to reflect the actual project network database.

It seems the dispute between BCC and Amey was heated (described at paragraph 38 of the judgment as a battle which raged) and at different times both parties criticised the adjudicator and the Judge.  Jackson LJ who delivered the leading judgment did not accept those criticisms and he said “Both the Adjudicator and the Judge were wrestling with a massive and convoluted contract, containing many oddities and infelicities in addition to some fairly muddled evidence about the relevant computer programmes.  It is perhaps unsurprising that the Adjudicator and the Judge came to opposite conclusions”.

Jackson LJ’s description of works undertaken by Amey since the beginning of 2014 was that these were “Based on inaccurate inventory information”, namely the data in the two tables that had not been updated.

Jackson LJ also found that a number of provisions in the main body of the contract meant that Amey were under a duty to keep the database updated, most notably clause 5 of the contract which required Amey to satisfy themselves about the extent of the network included under the contract.  That requirement only made sense if Amey were required to maintain the roads, footways etc. which existed.  Accordingly, if Amey “… were going to work for the next 25 years on the original unamended inventory … there would be no point in satisfying themselves about the extent of the project network which actually existed”.  From a contracting authority’s point of view this fairly standard clause has been afforded this additional significance.

Having found in BCC’s favour in relation to issue (ii) above, Jackson LJ also decided that the contract required the database to be regularly updated so as to record the actual road network, and not the hypothetical network based on data provided in the 2008 inventory.

One of the interpretation arguments mounted by Amey in favour of there being no duty to update, was that there was no deduction from monthly payments if the inventory was not updated.  The response to that was that if Amey failed to update the inventory data, they would not achieve the milestone certificates and, accordingly, there was no need to write into the contract any provision for financial deductions in respect of failures to update the database.  Therefore, certificates 6-9 which were issued whilst, in effect, the first instance of judgment prevailed over the adjudicator’s decision, were set aside so that the relevant calculations were performed again by reference to the actual project network inventory.

Amey quite rightly submitted that if the effect of the contract was that the database did not have to be updated then it was not the Court’s function to rescue BCC from a bad or even disastrous bargain.  However, what may be of wider application was that such an outcome did produce a ‘bizarre’ state of affairs and that appears to have inclined the Court of Appeal to steer away from that interpretation – particularly in a PFI contract intended to run for 25 years – classified as a ‘Relational Contract’.  At paragraph 93 Jackson LJ held as follows: “Any relational contract of this character is likely to be of massive length, containing many infelicities and oddities.  Both parties should adopt a reasonable approach in accordance with what is obviously the long-term purpose of the contract.  They should not be latching onto the infelicities and oddities, in order to disrupt the project and maximise their own gain”.

Inclining towards a favourable BCC interpretation also appears to have been assisted by the fact that the contract worked perfectly well (as BCC maintained) for the first 3½ years and things only went wrong in 2014 when Amey “… thought up an ingenious new interpretation of the contract, which would have the effect of reducing their workload, alternatively increasing their profit if BCC issued change notices”.

The question of whether Relational Contracts need to be treated differently when it comes to interpretation issues will have to be explored on another day but it can be said that if an interpretation of such a contract produces an “odd” result then that might be construed as an unreasonable approach to take and may not ultimately find favour in a dispute over that interpretation.

Posted in Colin Ricciardiell, Highways, Infrastructure, Local government, Procurement, Transportation.