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A joint venture involving Colas, VolkerHighways and Aecom has lost a High Court battle with Transport for London (TfL) over the rates it charged under a framework agreement.
The three contractors together entered into the London Highways Alliance Contract (LoHAC) maintenance framework with TfL in April 2013 as part of a joint venture called CVU.
But the agreement went sour when CVU attempted to charge rates higher than those agreed in a schedule of rates agreed as part of the framework because of restrictions on working hours imposed on it by TfL.
The eight-year deal made a provision for CVU to enter into call-off contracts for core maintenance and repair works.
TfL also had the power under the deal to issue instructions (known as task orders) to require other works to be carried out by CVU.
While the core services were generally priced as lump sums, the task order works were priced against rates or prices in a schedule agreed as part of the framework deal.
Any highways work carried out in London has to be performed under the London Permit Scheme (LoPS), operated by TfL.
Where a permit is issued, TfL also has the power to impose conditions limiting the days and times of day when works may be carried out.
CVU found that the window it hoped to use for night-time noisy works of four and a half hours between 7.30pm and 12am was severely curtailed by these permit conditions.
It claimed that the restrictions delayed and prolonged the works and required extra shifts at additional cost.
CVU’s legal team argued that the implementation of the restrictions was different to the position it had originally expected under the terms of the framework agreement and that it was therefore entitled to charge revised rates and prices.
Meanwhile, TfL argued that CVU should have expected the imposition of permit conditions and that CVU should stick to the original rates agreed.
The disagreement saw CVU quit the framework in February this year.
But now High Court judge Justice O’Farrell has ruled that TfL was within its rights to expect CVU to stick to the rates agreed as part of the LoHAC framework.
In her judgement, she said: “CVU makes a valid point that the framework agreement does not contain definitive hours and other conditions in which the works under task orders must be carried out.
“That introduces uncertainty as to the duration, scope and cost of work required. Any requirement by CVU to price such uncertainties would result in uncommercial high rates.
“There is a risk that contractors could include a premium for the risk of uncertain restrictions on working if forced to price them at the outset.
“However, that is balanced by the competitive tendering that applied for the framework agreement, and the volume and spread of works, from those at high risk of imposed restrictions to those at low risk of imposed restrictions. The inbuilt uncertainty introduced risk for both parties that could be assessed and evaluated.
“The purpose for which the schedule of rates was required was to provide consistency and certainty in the pricing of the works. The use of a schedule ofr enabled TfL to evaluate the tenders on a fair and equal basis.
“The fixing of rates and prices for the framework agreement provides opportunity and risk for both parties.
“If CVU undertakes the work instructed under a task order in a shorter duration or at lower cost than anticipated, it will receive a ‘windfall’ and TfL will have ‘overpaid’.
“If CVU incurs greater costs than anticipated, it will have to bear the loss and TfL will have made a saving.
“It was a matter for each party to assess the risks associated with permits issued under LoPS and to price those risks accordingly.”
“A textual and contextual analysis of the material provisions leads to the conclusion that the rates and uplifts in the schedule of rates are deemed to be the full inclusive value of the task work, including any limitations or restrictions on working conditions imposed by the permits.
“That interpretation accords with the natural and plain meaning of the words used and makes commercial sense.”
In a statement, CVU said: "CVU, comprising Colas, VolkerHighways and Aecom, would like to reiterate that they are in discussions with TfL to consider stepping down from core work in the central London area. This action was agreed prior to the result of the recent court case being announced, and is in response to the removal of the government operating subsidy."
Nick Fairholme, TfL’s director of project & programme delivery, said: “We are pleased that the court accepted our arguments in its ruling. We will continue to work with our partners, including CVU, to ensure that all work carried out in the capital is respectful of the needs of local residents and road users.”
