The cost of unclear repairs and maintenance contracts
A frequent issue that we encounter in advising social landlords is a lack of clarity in the drafting of annexures to repairs and maintenance contracts, such as key performance indicators (KPIs) and pricing frameworks.
A lack of careful drafting in these documents, or between them, can lead not only to difficulties in managing those contracts, but also time and money being incurred in resolving uncertainties and possibly disputes which divert the parties' focus away from the works being undertaken.
Obviously the best way to avoid such issues is to ensure that all the contract documents clearly record the terms agreed between the parties and there are no inconsistencies between them. If this hasn't been achieved and a dispute arises, then the contract will be interpreted objectively to ascertain the parties' intentions.
A recent case demonstrated the court's approach to interpreting a KPI framework document and provides helpful guidance to those seeking to interpret their own contract documents. The repairs and maintenance contract provided for KPIs which, if met, would entitle the contractor to a bonus but, if not met, could also lead to a default notice and then termination. The employer became dissatisfied with the contractor's performance, issued a default notice and then terminated. After termination the contractor sought to argue that the contract did not specify the levels of Minimum Acceptable Performance (MAP) and therefore the employer had not validly terminated. This was because the KPI framework just gave examples of the MAPs in calculations and did not actually expressly specify the levels. The contractor successfully argued this at adjudication and in the Technology and Construction Court but the employer then appealed to the Court of Appeal.
The Court of Appeal found that it was common ground between the parties that the contract intended to provide for MAPs and the level of the MAPs could be ascertained from the examples. If there were no MAPs, then the employer would have lost its right to terminate and the contractor would have lost its entitlement to claim a bonus. As clauses had been included by the parties on these issues, those clauses would have been inoperable without the MAPs.
If you are faced with issues in the drafting of your contractual documents and the parties agree what was intended, or what should now be provided for, then the
best way forward would be to amend the provisions by way of formal documentation signed by both parties. Parties should avoid informally adapting KPI frameworks or pricing frameworks as they run the risk of not taking care to understand the long-term implications of the changes, or one party being able to bring the informal agreement to an end by notice .