[co-author: Kaifeng Jiang]
A recent Privy Council case reminds parties of the centrality of the agreed contract terms when determining rights and obligations on construction and engineering projects, and the nature of the Engineer's role in FIDIC contracts.
In Uniform Building Contractors Ltd v The Water and Sewerage Authority of Trinidad and Tobago (Trinidad and Tobago)[2026] UKPC 2, the Authority, as Employer, contracted with UBC, as Contractor, to design, supply and install a pipeline, under an amended FIDIC Yellow Book 1999, the common name for FIDIC's Plant and Design-Build Contract 1999 (FIDIC Yellow).
The Authority terminated the contract following disputes about testing and an alleged failure to provide a method statement for a bridge crossing. UBC began proceedings and the Authority counterclaimed. UBC's claim focused on four items of work that UBC alleged were variations. (UBC also advanced termination-related claims, which were not pursued on appeal.) The trial judge dismissed the claim and counterclaim. UBC successfully appealed to the Court of Appeal of Trinidad and Tobago.
The Privy Council unanimously allowed the Authority's appeal, with Sir Peter Coulson, a judge with a strong construction and engineering law background, giving a highly persuasive leading judgment overturning the Court of Appeal's flexible approach to contract interpretation which the Court of Appeal had adopted on the basis that it would not be fair to allow the Authority to insist on following "the strict literalist language of the contract" as the project had been flexibly operated on site. This meant, for example, the Court of Appeal accepting the Engineer's subjective approach to determining variations (taken by the Engineer to "get the project done" and reflect how the works were being managed day-to-day), rather than following the variations clause precisely.
Contractor bound by the contract and its variation mechanism
UBC was bound by the agreed contract terms. FIDIC Yellow is a lump sum contract. The Contractor therefore had to allow for all foreseeable risks in its pricing. In line with longstanding case law, this meant that an underestimate of the work needed to meet the requirements of the contract could not be used to open the door to variations.
Moreover, after analysing the relevant clauses on variations, the Privy Council concluded that the items of work forming the subject of four disputed variations were, or should have been, included in UBC's lump sum price. Since the contract expressly covered each item, none of them amounted to a "Variation" as defined under the contract.
Reading the contract literally was not unfair. Although the Engineer's view is potentially relevant, it "cannot displace the proper application of the terms of the contract" and "it is wrong in principle" for either the way that the works were managed or the Engineer's operation of the contract to affect how the contract and its variation machinery should be interpreted.
The Privy Council also rejected the Court of Appeal's finding that UBC should not face the full effect of the contractual provisions because UBC had commenced work before the contract was finalised and that neither UBC nor the Authority had had sufficient time to carry out site investigations before starting work. UBC had ample time (two months from tender invitation to submission and over four months post-tender but pre-award) to assess the site conditions and was notified of the contract conditions in the Letter of Award well before work began.
UBC had tried a similar argument before, when, in relation to an earlier claim, it suggested that due to a lack of time to produce a detailed design, the contract should be interpreted on the basis that 90% of the design liability rested with the Authority. However, the contract amendments expressly made UBC responsible for all the design.
Contract procedures sacrosanct and entitlements lost
The Privy Council also highlighted where the Court of Appeal had misconstrued the contract's claim notification clauses.
It affirmed the English Technology and Construction Court's finding in 2014 of a condition precedent in Sub-Clause 20.1 (the Contractor's obligation to notify claims no later than 28 days after the Contractor has become aware, or should have become aware, of the event or circumstance giving rise to an extension of time or additional payment, if its entitlement is to be preserved). Had UBC wished to claim for the variations due to the Engineer's alleged failure to perform its role in the variation process, UBC had to claim under Sub-Clause 20.1, as the items apparently varied were known to UBC shortly after work started. Since UBC had not done so, the 28‑day period had expired long before the contract was terminated.
The Court of Appeal's conclusion that Sub-Clause 20.1 did not apply because the contract had been terminated was also rejected. It is well‑established law that contractual terms govern the conduct of the parties up to the point of termination, and that termination does not extinguish rights and obligations that have already accrued. The termination of the contract therefore could not, as a matter of law, revive an entitlement to claim that had been lost before termination.
The Court of Appeal was also wrong to conclude that the Engineer's conduct (in purportedly dispensing with Sub-Clause 20.1 and the Sub-Clause 3.5 determination requirement) had waived contract procedures or varied the contract terms. In equating the Engineer with the Employer, it had ignored Sub-Clause 3.1: that the Engineer has no power either to amend or to relieve either party of any duties, obligations or responsibilities under the contract.
Industry lessons
This case is a reminder that:
- before signing a lump sum contract, a contractor must pay close attention to wording relating to the contract's scope, consider all foreseeable risks in its rates, and not underestimate the work necessary for meeting contractual obligations;
- the notice under Sub-Clause 20.1 in the 1999 FIDIC suite is a condition precedent to entitlement. The position is the same after termination, meaning that already late claims cannot be revived; and
- the Engineer must follow contractual notice and claims procedures closely, and, where wording like that of Sub-Clause 3.1 in FIDIC Yellow is present, an argument that informal site practices or behaviour have changed such requirements is unlikely to succeed.
Read the Chinese translation of this article here.
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