when fixed price means fixed price

A recent case in the Court of Appeal serves as a reminder that, in the case of a fixed price contract, unless the parties agree to vary that contract, the fixed price will be payable even if less work was required than had originally been envisaged.

One example is the case of SWI Limited, who was P&I Data Services Limited’s sub-contractor. SWI had tendered to carry out building works for a fixed price, without any detailed breakdown or rates, and P&I accepted those tenders. The difficulty for P&I was that its contract with its employer was for works on a 'unit price basis'. As changes to the works required by its employer changed, P&I asked SWI to make various alterations to the work it was to perform under the contract. The result was that SWI did less work than had been anticipated at the outset and it sought payment for the full agreed fixed price.

P&I argued that SWI was aware its employer could vary the works, so there must have been an implied term in the contract as such, and, however, importantly, the price payable to SWI could vary. There was no written term to this effect. The Court of Appeal decided there was no evidence that the parties had agreed to any such term. If SWI did less work than it quoted for, that was because P&I asked it to do less. There was no evidence that SWI had agreed it would be paid less in these circumstances and SWI was entitled to be paid for the full fixed price.

In summary, contractors should be wary of entering into a fixed price contract with a sub-contractor if there is any risk that it may be necessary to reduce the scope of work. If in doubt, the contract terms must include the right to vary the scope and to make consequential changes to the contract price.

For further information please contact Richard Wade on 01865 254244 or email richard.wade@bllaw.co.uk