CONTRACTS: TERMINATING FOR CAUSE

(A) Disputes can easily arise between the parties to construction contracts where one party does ‘extra work’ that it alleges was not covered by the original agreement and the party who requested the construction work insists that this so-called extra work is not ‘extra’ at all. This was the situation in a costly and distressing case that had its origins in the attacks that took place in New York on 11 September 2001.

When the Twin Towers collapsed the resulting debris caused catastrophic damage to many neighbouring buildings, including the Deutsche Bank building in nearby Liberty Street. Following the 9/11 attacks, the Lower Manhattan Development Corporation (LMDC) was set up to rebuild the area and (1) ….. the Deutsche Bank building in 2004 as part of this project. However, the building was so badly damaged it was decided to demolish it and rebuild. The LMDC, a joint State-City corporation (2) ….. by an eight-member Board of Directors, put the demolition work out to (3) ….. . Under this process businesses are invited to (4) ….. a bid to carry out the required work at a certain price.

The successful contractor was a company named Bovis Lend Lease (Bovis), which was always aware that extremely hazardous materials, and asbestos in particular, were present in large quantities in the building. In October 2005, the parties entered into a contract under which LMDC would pay Bovis a (5) ….. price of $81 million to carry out the work, agreeing to make additional payments for what was termed any “Extra Work”. This was defined very precisely in the agreement as any work which went beyond the initial (6) ….. of the project, including dealing with additional hazardous materials that may be discovered as the work progressed. Bovis agreed a (7) ….. date of “on or before 1 March 2007”.

Bovis then subcontracted much of the work to a third party, the John Galt Corporation, which it was entitled to do under its agreement with LMDC. Almost immediately, both Bovis and the John Galt Corporation (8) ….. into huge problems with hazardous materials, most of which Bovis claimed were unforeseen and therefore not covered by the provisions of its contract with LMDC. However, LMDC declined to make any additional payments stating that all of the alleged extra work was clearly covered by the existing contract. The long-running dispute was only resolved with an extra payment of $10 million.

In August 2007, some John Galt Corporation workers were smoking in the building in direct violation of Health and Safety law. The resulting fire was much worse than it should have been because employees of Bovis had dismantled the water supply, also in violation of the law. Two firemen died as a result. Bovis then terminated its contract with the John Galt Corporation, (9) ….. a clause that allowed it to do so “for cause” without any additional payment. Bovis also approached LMDC claiming that the work caused by the fire amounted to “Extra Work” and (10) ….. a further additional payment. LMDC refused and a fresh dispute arose between the parties. The job of demolishing the Deutsche Bank building was finally accomplished in January 2011 at nearly twice the agreed price and four years late.