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Rail projects: 3 mistakes your team must avoid

Barry Hembling

The sector holds many demons but disputes over complex contracts and tricky engineering can be dodged with a few sensible steps.

With record levels of investment in the rail sector, parties carrying out track works should learn from previous disputes to avoid the same mistakes being repeated.

Here are three points to consider.

Agree relevant contract terms

Construction works to railways are usually carried out within tight timescales. But in the rush to commence on site, parties must ensure key terms are agreed, including how the works will be carried out and paid for. 

This was the case in a dispute concerning the extension of the Tyne and Wear Metro, Alstom Signalling Limited (T/A Alstom Transport Information Solutions) v Jarvis Facilities Limited (No 1) [2004].

The point at issue was whether the contractor had passed down a pain/gain mechanism from the main contract to its subcontractor. Although it was clear they had agreed to develop principles for how the mechanism might operate, no final agreement had in fact been reached.

“Although it is no substitute for a concluded contract, risks can be mitigated by a well-drafted letter of intent”

Similar issues arose in a dispute concerning grit blasting and painting works for the refurbishment of the Carr Mill Viaduct in Merseyside – Supablast (Nationwide) Limited v Story Rail Limited [2010] – where works were carried out under a letter of intent.

After the works completed, disagreement arose over the final account. The parties could not agree what works had been undertaken and whether there was one contract or two.

These cases remind us that starting works prematurely only leads to problems later. Ideally, parties would conclude a contract before works commence on site, but this ideal is not often the reality.

Although no substitute for a concluded contract, risks can be mitigated by a well-drafted letter of intent covering all the key terms. The parties must then observe any limitations in that letter and continue to progress their contract discussions until a final agreement is agreed and signed.

Check the contract has been operated properly

Target-cost contracts are a feature of many rail projects, under which the contractor recovers its costs for carrying out the works minus permitted deductions. Deductions may only be made if they fall within the terms allowed by the contract.

The incorrect operation of the contract mechanism, whether through misunderstanding or due to wider commercial reasons, can lead to differences between the parties. This was the case in a dispute concerning the construction of the Channel Tunnel rail link, Costain Limited (Corber) v Bechtel Limited [2005].

“The incorrect operation of the contract mechanism, whether through misunderstanding or due to wider commercial reasons, can lead to differences between the parties”

The court held that the contract had not been operated impartially, with deductions having been made that were in the interests of the project manager. In such cases, the burden lies with the party challenging the engineer’s decision to show why the decision is incorrect.

To dispute any award, it may first be necessary to understand the basis of the ascertainment, and clarification should be obtained if this is unclear.

Ensure engineering assumptions are verified

Railway projects can involve complex engineering which can lead to factual and technically complex issues when it fails.

In particular, subsidence and heave cases – many involving works to railway embankments – are well known. This is because London Clay is notorious for giving rise to different types of instability which can lead to large slips in clay slopes, especially where site conditions are not understood.

Failing to understand the ramifications of engineering assumptions can lead to catastrophic errors. Mundane human factors can often be a cause of engineering failures where warning signs can be overlooked or misinterpreted.

To minimise risks, engineering works must be co-ordinated, especially between the contractor and the engineer, with a proper quality assurance system in place.

Barry Hembling is a partner in the construction and engineering team at Fladgate

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